AT Capital Research

Bangladesh
17 April 2008

Growth, Investment, Opportunity

Asian Tiger Capital Partners

The Bangladesh paradox has been one of surprising economic resilience in the face of natural disasters, poor governance and political volatility. In effect, an entrepreneurial private sector base has compensated for a less supportive macro political environment. However, a key challenge is whether Bangladesh can move away from an economy that is an impressive underdog, to one that can truly join the ranks of the fastest growing economies in the region. Is it realistic for Bangladesh to follow in the footsteps of Vietnam and become the next Asian Tiger? It is important that Bangladesh can attract long term investment flows that will help build the infrastructure and productive capacity of the economy. The aim of this paper is to provide global investors with an outline on the challenges and prospects for the Bangladesh economy. But a large portion of this report is dedicated to our review of industry profiles and sector reviews, reflecting our belief in the need to focus on specific investment ideas. We hope this report, the first of a series of more detailed sector analyses we intend to publish, will reduce some of the informational asymmetries that have constrained FDI flows. We remain optimistic that the next phase of Bangladeshs economic development will provide many profitable opportunities for global investors.

EDITORS
Ifty Islam Managing Partner +880 171 584 0112 ifty.islam@at-capital.com Syeed Khan Partner +880 172 726 1267 syeed.khan@at-capital.com Abdullah Ibneyy Shahid Research Associate abdullah.shahid@at-capital.com

Asian Tiger Capital Partners

UTC Building, Level 16 8 Panthapath, Dhaka-1215 Bangladesh www.at-capital.com

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CONTENTS 1. 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 2. Our Top Investment Investment Ideas. deas 3. FDI in Bangladesh: Background Background Trends in FDI flows Sector distribution of FDI flows FDI outlook 4. Capital market market International diversification An emerging capital market A favorable environment for foreign investors 5. Banking. Banking Banking sector performance The regulatory environment Opportunities in a developing economy 6. Energy Energy Energy review Meeting the countrys energy needs 7. Infrastructure (non(non-Energy) Energy).. Road, rail and ports Lessons from around the world Strengthening the nations backbone 8. Agriculture Agriculture... iculture A long tradition in agriculture Meeting the needs of the population Improving yields and product innovation 9. Textiles Textiles A success story Increasing global market share Exploring the value chain 10. Outsourcing. Outsourcing Redefining the supply chain An enabling environment A credible partner 11. Manpower Manpower Increased global labour mobility Substantial opportunities for global competitiveness Enabling an international workforce 5

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12. Pharmaceuticals Pharmaceuticals Competitive advantages ahead of 2016 A sustainable long term strategy 13. Healthcare.. Healthcare The current state of the market Prospects in medical tourism Developing private health care 14. Biotechnology. Biotechnology The importance of biotechnology for Bangladesh Lessons from India Opportunities for investment 15. Light Engineering Engineering Industry review Potential growth areas Building on a strong base 16. Heavy Engineering: Ship Building............. Building A booming market Is growth sustainable? 17. Tourism.. Tourism Marketing and promotion strategies An overview of the hotels sector Developing an effective tourism strategy 18. Education. Education The enabling environment of education in Bangladesh Areas for focus 79

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Appendices Appendix 1-Overview Figure 1-10: Various indicators on doing business in Bangladesh Figures 11-22: Investment related costs in Dhaka vis--vis various other cities around the world Appendix 2-Energy Figure 1: Power generation mix in Bangladesh in Fiscal Year (FY) 2006 Figure 2: Trend in annual power generation capacity in Bangladesh Figure 3: Coal reserves in Bangladesh Appendix 3-Infrastructure (non(non-energy) Figure 1: Composition of different types of roads in Bangladesh (2007) Figure 2: Revenue earnings and expense of Bangladesh Railway Figure 3: Toll target and collection by Jamuna Multipurpose Bridge Authority Case 1: Reform of Bangladesh Railway Appendix 4-Agriculture Figure 1: Food grain production in Bangladesh Figure 2: Export of agricultural commodities from Bangladesh Figure 3: Production and import of chemical fertilizers by Bangladesh Figure 4: Employment broad economic sectors 116

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Appendix 5-Textiles Figure 1: Ready Made Garment (RMG) exports from Bangladesh Figure 2: Main apparel items exported from Bangladesh Figure 3: Structure of Bangladeshs Primary Textile Sector (PTS) Figure 4: Comparative growth between spindle capacity and growth in RMG Appendix 6-Manpower Figure 1: Estimated size of remittances market in Bangladesh Figure 2: Different categories of Bangladeshi migrant workers Figure 3: Overseas employment of Bangladeshi workers at various skill levels Figure 4: The demographic implosion in developing world (mn) Figure 5: Sources of Remittances to Bangladesh (in USD mn) Appendix 7-Pharmaceuticals Figure 1. World market by geographic region Figure 2: Top 20 manufacturers in Bangladesh by sales Figure 3: Top 10 Therapeutic segments in Bangladesh by sales Figure 4: Top 14 molecules in Bangladesh by sales Figure 5: Major API manufacturers in Bangladesh and their products Appendix 8-Healthcare Figure 1: Total expenditure on health as a %age of GDP by countries, 2004 Figure 2: Per capita expenditure on health in various countries Figure 3: Distribution of patients by method of treatment in Bangladesh (%), 2005 Appendix 9-Biotechnology Figure 1: Indian Biotech segments Case 1: Major Multinational Biotechnology players in India Appendix 1010-Heavy Engineering (Shipbuilding) Figure 1: Growth of world shipbuilding capacities Appendix 1111-Education Figure 1: Bangladesh educational institutes Figure 2: Number of public and private technical-vocational institutes 2005 Figure 3: Number of public and private professional college 2005 124

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Overview

Overview
The Bangladesh paradox has been one of surprising economic resilience in the face of natural disasters, poor governance and political volatility. However, a key challenge is whether Bangladesh can move away from an economy that is an impressive underdog, to one that can truly join the ranks of the fastest growing economies in the region. Bangladesh has three key attractions for global investors and multinationals: a large base of low-cost labour, a large domestic market of 150mn people, and nearly 3bn people in the Asian region that it has market access to. The aim of this paper is to provide global investors with an outline on the challenges and prospects for the Bangladesh economy as well as investment opportunities. The fact that Bangladesh is lagging in the economic development chain is a potential advantage for policymakers in terms of the ability to learn from the experience of other countries. Vietnam saw its FDI increase from USD 2bn in 2000 to an estimated USD 1 20bn in 2007. it is important that Bangladesh can attract similar long term investment flows that will help build the infrastructure and productive capacity of the economy. We believe it is realistic for Bangladesh to achieve a similar tenfold increase over a seven year period, increasing FDI from a projected USD 700mn in 2008 to USD 7bn by 2015. The growth of private equity firms (those that invest in non-listed securities) can positively impact Bangladeshs ability, not only to attract FDI, but also to improve manufacturing productivity. A dynamic private sector and a substantial increase in FDI flow is likely to fail to deliver the kinds of economic growth gains Bangladesh needs to become a Middle Income Country (MIC) unless the government and the regulatory authorities can provide a supportive enabling environment in terms of infrastructure, corporate governance, capital markets, law and order, education, fiscal policies among other factors. . We hope this report, the first of a series of more detailed sector analyses we intend to publish, will reduce some of the informational asymmetries that have constrained FDI flows. We remain optimistic that the next phase of Bangladeshs economic development and will provide many profitable opportunities for global investors.

Asian Tiger Capital Partners

Ifty Islam Managing Partner +(8801) 715840112 ifty.islam@at-capital.com

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Introduction The Bangladesh paradox has been one of surprising economic resilience in the face of natural disasters, poor governance and political volatility. Even if growth has lagged a number of other economies in Asia, most notably China, India and Vietnam, the volatility of Bangladeshs growth has been lower. In effect, an entrepreneurial private sector base has compensated for a less supportive macro political environment. However, a key challenge is whether Bangladesh can move away from an economy that is an impressive underdog, to one that can truly join the ranks of the fastest growing economies in the region. Is it realistic to assume that Bangladesh can follow in the footsteps of Vietnam and become the next Asian Tiger? We believe optimism that Bangladesh can move into the ranks of Middle Income th countries (defined as a per capita income of USD 875) by 2021, the 50 anniversary of its Independence, is justified. But this will require Bangladesh moving from a 5-6% growth trajectory to around 7.5%. This is not impossible given the experience of other countries in the region. But it is not inevitable. Much will depend on the ability of Bangladesh to achieve achieve the acceleration in FDI (Foreign Direct Investment) flows seen in the rest of Asia and parts of Latin America. Vietnam, for example, saw its FDI increase from USD 2bn in 2000 to an estimated 1 USD 20bn in 2007. It is important that Bangladesh can attract similar long term investment flows that will help build the infrastructure and productive capacity of the economy. We believe it is realistic for Bangladesh to achieve a similar tenfold increase over a seven year period, increasing FDI from a projected USD 700mn in 2008 to USD 7bn by 2015. The role of government should be to create an enabling environment for both FDI and domestically generated investment capital to prosper. This will clearly require regulatory reforms, development of the capital markets, and greater infrastructure expenditure, especially on power generation. But Bangladesh also needs to market the opportunities it offers to global capital markets and multinationals more effectively. While FDI seems to be a generic and nebulous concept to many, ultimately it is an aggregate of a series of specific investments across a variety of industries. The aim of this paper is to provide global investors with an outline on the challenges and prospects for the Bangladesh economy. But a large proportion of this report is dedicated to our review of industry profiles and sector reviews. This is not accidental, but reflects our belief that the range and breadth of investment opportunities, as Bangladesh integrates more effectively with the global economy ,is not fully appreciated by many international investors. We hope this report, the first of a series of more detailed sector analyses we intend to publish, will reduce some of the informational asymmetries that have constrained FDI flows. We remain optimistic that the next phase of Bangladeshs economic development will provide many profitable opportunities for global investors.

The Bangladesh paradox

Optimism for becoming middle income country is justified.

Building an enabling environment to spur FDI and domestic private investment

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

Source: CIA Factbook2

Economic history suggests never underestimate the scope for transformational change

When considering what might be possible in Bangladesh, global investors should not overlook the scope for transformational shifts. One only needs to look at recent history for evidence that globalization has accelerated the potential pace of economic change. Even the most optimistic Indian patriot would have been hard pushed to forecast in 1992, when the country was almost bankrupt and going to the IMF for emergency funding, that just 15 years later it would become a global 3 powerhouse in services with near USD 300bn in reserves. Similarly with China, in th the e immediate aftermath of the political uncertainty following Tiananmen Square, very few economic forecasters would have predicted that less than 20 years later China would be the manufacturing power house of the world, world, with more than USD 1.5tr of reserves. As students of economic history, we are struck by the scope for profound changes in a countrys competitive economic position over the longer-term.In 1825, China and India constituted 50% of global GDP and by 2050 these two nations will again constitute 50% of global GDP. US investment bank Goldman Sachs, who have done much of the pioneering work on BRICs (Brazil, Russian, India and China) noted in a recent report (Brics and Beyond, GS, 2007) when commenting on 3 India that:

On the eve of the Industrial Revolution (around 1770), India was the second7

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In 1770 India was the second biggest economy in the world. By 2050 it will overtake the US to reclaim 2nd place largest economy in the world, contributing more than 20% of total world output. By the 1970s, after two centuries of relative economic stagnation, that share had fallen to 3% the lowest in its recorded history. From a long-term perspective, the post-industrial economic decline of India (and China) is a historical aberration, driven to some extent by a lack of openness. After independence in 1947, India followed inward-looking and state-interventionist policies that shackled the economy through regulations, and severely restricted trade and economic freedom. The result was decades of low growth, pejoratively termed the Hindu rate of Growth. Reforms beginning in 1991 gradually removed obstacles to economic freedom, and India has begun to play catch-up, steadily re-integrating into the global economy.
They go on to forecast that India will overtake the US as the second largest 3 economy in the world to China by 2050. The purpose of all this historical analysis is to rere-iterate that Bangladesh by 2021 could be radically different to the country you see today. today Transformational change is not inevitable but it is certainly possible. Bangladeshs geographic position gives it every opportunity to participate in the Asian Century. We believe it is this potential that will increase the focus, interest and opportunities for global investors.

Goldman Sachs bullish on Bangladesh as part of their Next 11 EM markets to follow the BRICs

Goldman Sachs in 2005, introduced the concept of the Next Eleven (N(N-11) and included Bangladesh Bangladesh in that list. Their goal was to identify those countries that could potentially have a BRIC-like impact in rivaling the G7. Their main common ground and the reason for their selection was that they were the next set of largepopulation countries beyond the BRICs. The result was a very diverse grouping that includes Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, 3 Pakistan, Philippines, Turkey and Vietnam. JP Morgan also introduced the concept of the Frontier five and included Bangladesh in that list. In their 2007 report (Ho Chi Minh trail to Mexico, JP 4 Morgan Research, 04 April 2007) they commented that:

JP Morgan have added Bangladesh to their Frontier five on the basis of its favourable demographics and large population

It is the demographics of Bangladesh that justifies its inclusion in the JPMorgan Frontier Five. The country ranks fourth in growth in economically active population. Five-year economic growth is strong at 6.1% (CAGR). Progress has been made over the last few years to reduce poverty, increasing literacy levels and moderating population growth to a more sustainable level. An assertive judiciary, active civil society and a relatively free media have increased public accountability.

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Bangladesh population growth rate one of the fastest in Asia

Source: globalis.gvu.unu.edu5

The growing number of global investment banks focusing on the opportunities in Bangladesh clearly suggests increasing potential to step up both FDI and foreign portfolio flows. But translating this rising interest by the foreign investor community into substantial capital inflows will require a focused strategy to create both a broad range of concrete investment opportunities/proposals along with a supportive regulatory environment. Bangladesh: The Importance of Developing an Economic Vision There is little doubt that the success of the previous Asian Tigers has been predicated on Economic Vision. Vision In many cases, this has been at Government level. Witness Chinese Paramount Leader Deng Xiaopings Open Door policy of the early 1980s in moving the Communist economic system towards a more market and export based strategy. Vietnam, the current favourite of the global investors buying into the Asian economic miracle, adopted its Doi Moi (roughly translates as change or something new) or Renovation policy back in 1986 that culminated in peak FDI flow 10 years later in 1996. The Asian crisis hit Vietnam hard but the ability to grow FDI flow from USD 2bn in 2000 to USD 20bn in 2007 6 underlines the important foundations the Doi Moi policy made. Former PM Mahathir adopted his Vision 2020 strategy in 1994 of moving Malaysia from a 7 developing to an advanced nation. But not all transformational economic vision comes at a government level. Take South Korea, which has just celebrated moving to a per capita GDP of USD 20,000, a near trebling in just a decade. Indeed in 1995, Korea had a per capita GDP of USD 10,000 that collapsed to USD 7800 in the aftermath of the 1997 Asian crisis. But Korea managed to re-invent itself despite the collapse in GDP and the crisis of national self-confidence. While the government played an important enabling role, it was the Chaebol or family conglomerates that had the Vision to help the country accelerate to first world status. When we think of Korea now, we associate it with Samsung, LG and Hyundai. The private sector was the catalyst for the dramatic economic recovery. The redefinition of Korea corporate brands such as Samsung, away from being perceived as a cheaper alternative to Japan, to being associated with the most cutting edge technology in electronics from 70" plasmas to talking refrigerators should be an inspiration to any corporate 9

Economic vision at both a government and private level key to the success of current and previous Asian Tigers

Korean Chaebol have shown the potential impact corporate strategic vision can play in a countrys economic development

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questioning the ability of their vision to impact a country. (n.b. In 1950, South Koreas GDP per capita was the same as Bangladesh!). India was probably a hybrid between the two models of public sector versus private sector economic vision. The economic crisis of 1992, when the country was almost running out of reserves and forced to seek emergency IMF financing, forced a re-thinking on a socialist economic strategy. The Hindu rate of growth of 3% and all the problems of the License Raj with a labyrinthine and suffocating bureaucratic apparatus were increasingly viewed as misguided. It took the vision of the then finance minister (now prime minister) Manmohan Singh to create the right environment for change that included cutting the excessive tariff barriers and regulatory constraints on foreign ownerships and repatriation of profits that was limiting FDI flows. Indeed when Bangladeshi corporates express skepticism about their ability to work with policymakers to deliver necessary regulatory reforms, one need only look to India, whose bureaucracy in the early 1990s was no less unwieldy than Bangladeshs regulatory framework today, for evidence of what can be done when the public and private sectors develop a partnership/adopt a mindset of cooperation. But the Indian success story was clearly not all down to government reforms. The Valley y to Bangalore, have also private sector led by NRIs returning from Silicon Valle played a pivotal role. Family companies like Tata and Reliance have re-invented themselves. Wipro, now of the worlds leading IT and outsourcing companies was originally an edible oil company. The Bangladesh growth model is likely to be built on the dynamism of its entrepreneurs/corporates, closer to the Korean experience, but one still needing a supportive regulatory environment. Bangladeshs Economic Strategy In formulating the likely economic strategy and hence investment opportunities, there have been two excellent and comprehensive reports that we would recommend that global investors take a look at. The 2006 CPD paper Bangladesh Vision 2021 prepared under the Nagorik committee is an excellent and thought provoking summary of many of the key issues. The July 2007 World Bank Report Bangladesh: Strategy for Sustained Growth also provides plenty of food for 9 thought. In the latter report, the World Bank suggested that Bangladesh could reach Middle Income Country (MIC) status (defined as USD per capita of USD 875) by 2016 if it grows 7.5% per year. The report highlighted three key mutually re-inforcing long9 term transitions as being integral to achieving this outturn including:

Indias hybrid economic vision with government combining with NRIs helped provide the foundation for the rapid economic growth of today

A sustainable economic strategy for Bangladesh

Key themes include shift away from agriculture, greater integration with global markets and the emergence of dynamic urban sectors.

A shift from agriculture to industry and services Deepening integration with global markets The emergence of diverse dynamic urban centers The WB Report goes on to note that the management of these transitions, in turn, will require better economic governance and business environment without which FDI will continue at low levels; continued macroeconomic stability; a commercially 10

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viable energy sector that supports the countrys vast energy needs; deeper and more efficient financial sector; and a greater emphasis on the quality of education and labour skills.

New strategic sectors for the economy include offshore light manufacturing, eco products, data processing, manpower and agro-businesses

The Bangladesh Vision 2021 paper from the Nagorik Committee identified eight inter-related goals. In terms of Goal Three, to help Bangladesh achieve MIC status th by the time of its 50 anniversary from Independence in 2021, the Committee identified a number of new sectors assembled electronic goods, data processing, developing the jute industry to benefit from the growing demand for eco-friendly products. They also outlined the support for the expansion of existing leading sectors of the economy including textiles, manpower, agro-food processing. They emphasized the need to also support Small and Medium Sized Enterprises 8 (SMEs) in terms of access to credit and technology innovations. The Importance of Improving Manufacturing Productivity The World Bank also did a survey of 700 firms in five key industries where they 9 found six key factors that was likely to improve productivity: i. Addressing energy supply constraints where they noted that a 1% increase in the number of power outages in a year reduces the productivity of the average firm by 10%. ii. Increase FDI since they found firms with any level of foreign ownership were found to be 10% more productive on average than firms that are wholly domestically owned. iii. By lowering trade barriers since they found that firms that export the majority of their output were 10% more efficient than those that are more domestically focused. Experience gained in export markets was selfreinforcing over time. iv. Building human capital: Higher Education levels and better management training were important contributors to firm productivity. v. The WB also noted that new measures were needed to encourage the application of a greater innovation and the adoption of more advanced technologies. vi. Strengthening law and order: the ongoing presence of protection payments was a negative.

WB survey highlighted key factors to improve productivity

.these included better infrastructure, increased FDI, more open trade, education, innovation, law and order

Source: CIA Factbook2

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International Private Equity firms can bring in substantial efficiency for Bangladeshi firms
It is worth worth noting that the arrival of international Private Equity firms (those that invest in nonnon-listed securities) can positively impact Bangladesh on all of the above with the exception of law and order. The major value-added from private equity is likely to be from strategic capital. In a report on Private Equity, leading 10 strategy consulting firm McKinsey noted that:

Several buyout firms now recognize that they can create value (in conjunction with management teams) by participating more in managing the companies in their investment portfolio and by developing cross-industry functional skillsincluding marketing, pricing, lean manufacturing, and procurement and supply chain management. (McKinsey 2005)
Lessons from Other Other Countries Vietnam The fact that Bangladesh is lagging in the economic development chain is a positive in terms of the ability to learn from the experience of other countries both in this region and in the emerging markets (EM) more broadly. For lessons Bangladesh can learn from the rest of Asia, the UNDP 2005 paper Report on Identification of Employment Oriented Export Sectors offers insights including comparables with Thailand, Sri Lanka, Pakistan, Vietnam and Cambodia across issues such as product and market diversification, trade promotion, IT, 11 Government-Private Sector forum and Investment Climate.

Vietnam increased FDI from USD 2bn in 2000 tenfold to USD 20bn in 2007

However, the clear success story in Asias Asias Vietnam, Vietnam, which has seen FDI expand tenfold from USD 2bn in 2000 to USD 20bn 20bn in 2007 with in excess of USD 5bn recorded for Q1 2008. Vietnams growth in the 2000-2006 period has been 7.4% 6 second only to China at 9.5% and above Indias 6.7%. What can Bangladesh learn and what are the lessons for potential global investors in Bangladesh from the Vietnam experience? experience? A paper by Hsieh Weng-Jen (2005) The Determinants of Foreign Direct Investment in South East Asian Transition Countries suggests that foreign investors value political stability, clear government policies, local market size and cost structures in considering FDI destinations. Vietnams political stability as a one party state under the Communist Party has given some reassurance to 2 investors. Since the Doi Moi policy was launched, the government has been striving to implement policy measures to promote investment. As a recent Fitch Ratings Report (February 2008) has noted, (Fitch) believes that legal framework, trade agreements, tax incentives and industrial facilities, are crucial for foreign 12 direct investment into Vietnam. Also, according to the World Banks Doing Business Report 2008, Vietnams st overall position improved to 91 (out of 178 countries) which was better than th th Bangladesh (107 ) though the latter was still better than India (120 ), and th 13 Cambodia (145 ). Fitch also notes that since the introduction of the First Law on Foreign Investment in 1987, Vietnam has identified itself as a county determined to attract FDI. The FDI policy was further regulatory changes and amendments in 12 1990, 1992, 1996, 2000 and 2003. (see Appendix 1 for details on Bangladeshs Ease of Doing Business results).

Vietnam benefited from its Doi Moi policy with a pro-active strategy to attractive FDI

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Vietnams continues to innovate FDI policy including lowering corporate tax rates, more industrial zones
To further enhance the countrys attractiveness as an FDI destination, Vietnams government has also proposed cutting the standard corporate tax rate from 28% to 25% to create a more favourable business environment for FDI. The government also continues to provide preferential incentives to projects investing in the industrial, processing and economic zones. An additional 22 industrial zones were 6 set up in 2007 alone and the total now stands at 150.
Figure 4: Diaspora in 2006 Diaspora (mn) 3 24 39 4 Total population Diaspora as a % (mn) of total population 84 1,100 1,300 142 4% 2% 3% 3%

Countries Vietnam India China Bangladesh

Source: Several sources compiled by Wikipedia14

Vietnams Diaspora have played a key role in its economic success

Leveraging Diaspora A recent Deutsche Bank Report (Understanding Vietnam, DB Research, July 26, 2007) suggested that an estimated 3mn Vietnamese live abroad mostly in North American and Europe. This compares to 20-25mn and 55-60mn of the Indian and Chinese Diaspora respectively. However, the relative size of this Diaspora is larger at 3.6% of the population. Remittances from the Vietnamese Diaspora amounted to 9.5% of GDP in 2006, second only to Philippines. A strong educational system is also a major attraction for Vietnam Vietnam as an FDI destination. Its literacy rate of 90% is similar to Chinas and significantly higher than India at 60%, Pakistan at 50% and Bangladesh at 43%. As the DB report notes, due to Vietnams openness to foreign influence and reliance on trade, the workforces English language proficiency compares favourably with many of its 6 neighbors, especially China. On infrastructure, Vietnam is constructing six international airports with one Bangkok. An elevated railway envisaged to be able to compete with Singapore or Bangkok is planned for Hanoi. The government plans seven new power plants by 2010, one natural gas plant and one nuclear plant all with the help of foreign investors. This 6 will reduce reliance on hydropower from around 40% currently. So in terms of Vietnam lessons for Bangladesh, a dynamic and proactive FDI strategy is clearly important. Investment in education is another key focus. Leveraging Diaspora is an area Bangladesh has done with remittances but it can clearly do more, especially in terms of attracting higher skilled diasporas back, leveraging NRB intellectual and commercial capital, rather than lower wage workers sending money back to the country. But perhaps the greatest lesson Bangladesh can learn is that in the same way Vietnam has clearly benefited from the China+one policy of many global multinationals in terms of reducing their dependence on China, Bangladesh should aim to position itself as India+one. It has already done so to some extent in textiles. But in other areas such as outsourcing, it has been far less effective.

Vietnams focus on education

Vietnams has focused on improving infrastructure, in both power and communications

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Remittances is important for Vietnam

Source: DB Research (2007)6

The Importance of a Supportive Supportive Enabling Environment

Creating an enabling environment is the key.

A dynamic private sector and a substantial increase in FDI flow is likely to fail to deliver the kinds of economic growth gains Bangladesh needs to become MIC unless the government and the regulatory authorities can provide a supportive enabling environment in terms of infrastructure, corporate governance, capital markets, law and order, education, fiscal policies and so on. . An excellent report on improving the enabling environment is the Bangladesh Enterprise Institutes (BEI) 15 Reducing the Costs of Doing Business in Bangladesh (2003). Although the paper is several years old, it offers a number of valuable insights that are still relevant. Enabling Environment Goal 1 Better Infrastructure Bangladesh needs to increase investments in its infrastructure both in power and communications. Without this, it is self-evident that economic vision and a dynamic corporate sector will remain capacity constrained. This involves significant expansion of its power generation capacity. A recent ADB report suggested that to grow at 7% GDP growth would necessitate Bangladesh adding 2000 MW of capacity each year. Additional investment in port facilities both in terms of greater private sector participation to cut transit and processing times as well as potentially a deep water port is also important. One major factor that has meant that Bangladesh has one of the most inefficient ports in the region is the powerful labour unions which have historically enforced wage and facility-fee increases and allowed corruption to persist. Another constraint has been the lack of investment in equipment in ports such as the addition of more automated gantry cranes.

5 enabling environment goals

Encouraging private sector infrastructure investment

Creating transparency and accountability

Enabling Environment Goal 2 More effective Political, Regulatory Regulatory and Corporate Governance The 2006 Nagorik committee recommended a transparent campaign financing system and more accountable MPs to reduce the risks of corruption in government procurement programs as a soft means of party financing. They also 8 recommended the establishment of an effective Anti-corruption commission. Both the 2007 WB Report and the 2006 Nagorik Paper emphasized the need for decentralization of government to improve the efficiency and remove bottlenecks 14

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in government and the administrative bottlenecks that are an ongoing constraint 8,9 on economic development and a more dynamic private sector. The regulatory authorities need to ensure better corporate governance which should include more transparent, credible and reliable accounts from Bangladeshi companies. Also greater protection of minority shareholder rights is required to ensure more owner/managers focus on delivering efficiencies to maximize returns for all shareholders and not just themselves as the majority shareholder.

Source: The Heritage Foundation16

More effective tax collection is also a key enabling goal. As the WB (2007) have noted The low revenue effort that stems from weak administration creates a chain of disincentives to good governance, from low salaries for civil servants to 9 inadequate operations and maintenance. Enabling Environment Goal 3 A more developed financial system/capital markets One of the biggest constraints for Bangladeshi business is the high cost of corporate capital. Even with interests around the world falling sharply, many companies still have to pay 16%+ funding costs which make a number of investment proposals unviable. This is partly a reflection of very wide margins/spreads adopted by banks between deposit and lending rates. Bangladesh Bank has been pressuring commercial banks to narrow their spreads which is a positive step. It is also a reflection of a number of companies unwilling to access the stock market as a form of cheaper financing. This is partly because of what they perceive as unattractive valuations with IPOs being brought on a net asset rather than a market price based valuation. The book building process for the proposed sale of Grameenphone later in 2008 should alleviate some of the concerns from owners of businesses about depressed valuations if they come to market. Bangladesh also needs to develop a corporate bond market which in turn requires greater development and liquidity of the government bond market.

A more developed financial system, both in capital markets and banking, will be an important foundation for more rapid growth

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Improving Law and Order as well as political stability will be critical to increase foreign investor confidence
Enabling Environment Goal 4 Law and Order/Political Stability On Law and Order, BEI notes that Among the elements that add to the cost of doing business in Bangladesh (is) the inordinate delay in the disposal of cases, by the lower courts in particular, and the indifference or incapacity of the police in enforcing law and order. They recommend additional public sector investment in expanding the judiciary as well as increasing the pay for the police force as well as 15 other law enforcement officials. One might add that a move away from confrontational politics between the major political parties that resulted in regular strikes that stopped business will also be important if Bangladesh is to achieve its longer-term goals. As the 2007 WB Report highlighted The fractiousness of Bangladeshi politics contributes to political uncertainty and heightens perceptions of economic risks among investors, 9 especially foreigners. Enabling Environment Goal 5 Education

Improved education, especially vocational training and English language, key

If Bangladesh wants to become the next Asian Tiger, it needs to develop a broader base of skilled workers and managers that can support the expansion into new higher value activities such as IT outsourcing as well as offshoring. This should be based on an expansion of secondary and tertiary education though the more rapid benefits may well come from the establishment of a number of vocational training colleges in IT, English Language and other specific areas such as nurses, electricians, plumbers etc that might underpin a significant expansion in Manpower exports. The very favourable demographics in Bangladesh with its young and growing population contrast with Europe, Russia, China and Japan which will suffer from a rapidly ageing population. Conclusions: Investment Opportunities Bangladesh emerged from the 1971 war of independence a free nation, but one whose economy and infrastructure was shattered. It was notably described by US Secretary of State Henry Kissinger as an international basket case. Its achievements over the past 37 years has been impressive, most notably in its emergence as a major global textile and RMG exporter. More broadly, the low volatility and consistency of growth in the past decade, despite political instability and natural disasters is a testament to a dynamic and entrepreneurial private sector. We see the prospects for Bangladesh to accelerate its growth rate to 7%+ on a consistent basis over the next 10 years which should take it towards a goal of becoming an MIC. We outlined a number of enabling goals the government needs to deliver on from substantial investment in infrastructure, to corporate and regulatory governance reforms, capital markets and law and order. A more focused education strategy is critical if Bangladesh is to leverage its favourable demographics in terms of a young and rapidly growing labour force. An aggressive strategy to reduce internet costs by a further 75% will be necessary to act as a catalyst for the more rapid development of the IT sector if Bangladesh is to position itself as a major beneficiary of India diversification the th so-called India+1 strategy. (see Appendix 1 for details on the JETRO 17 Annual 16

Constraints create a window of investment opportunities

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Report on the costs of doing business in Bangladesh versus other Asian Countries). Bangladesh has three key attractions for global investors and multinationals: a large base of low-cost labour, a large domestic market of 150mn people, and nearly 3bn people in the Asian region that it has market access to. We believe it is credible for Bangladesh to emulate Vietnams FDI performance of a tenfold increase over seven years. Assuming FDI of USD 700mn in 2008, this suggests Bangladesh should aim for FDI of USD 7bn by 2015. This will require among other things a more pro-active FDI strategy such as marketing Brand Bangladesh more effectively overseas, reducing regulatory and tax disincentives for foreign investors, and encouraging the private sector and capital markets to develop specific investment ideas foreign companies and funds can actually invest in. In the next section of this report we list what we believe are the most compelling investment opportunities for global investors. In the remainder of document, we provide more detailed analysis on the key sectors in Bangladesh including Capital Markets, Banks, Energy, Non-Energy Infrastructure, Agriculture, Textiles, Outsourcing, Manpower Exports, Pharmaceuticals, Healthcare, Biotechnology, Light Engineering, Heavy Engineering , Tourism and Education.

References 1. Hsieh Weng-Jen. (2005) "The Determinants of Foreign Direct Investment in South East Asian Transition Countries". Paper presented at National Chung Kung University. Central Intelligence Agency-the World Factbook available at https://www.cia.gov/library/publications/the-world-factbook/index.html. Goldman Sachs Global Economics Group. (2007). BRICs and Beyond. Available at http://www2.goldmansachs.com/ideas/brics/BRICs-andBeyond.html on April 7, 2008. JP Morgan Research. (2007). Ho Chi Minh Trail to Mexico-Launching the JPMorgan Frontier Five and EM8. Official website of Globalis available at globalis.gvu.unu.edu. DB Research. (2007). Understanding Vietnam: a look beyond facts and figures. Available at www.dbresearch.com/PROD/DBR_INTERNET_ENPROD/PROD0000000000213377.pdf Mohammad, M. B. (1991). The Way Forward (Vision 2020). Paper presented at the Malaysian Business Council. Available at http://www.epu.jpm.my/New%20Folder/publication/the%20way%20forwar d.htm. Centre for Policy Dialogue (CPD). (2007). Bangladesh Vision 2021. Prepared under the initiative of NAGORIK Committee 2006. Dhaka: 17

2.

3.

4.

5. 6.

7.

8.

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Centre for Policy Dialogue 9. The World Bank Office, Dhaka. (2007). Bangladesh: Strategy for Sustained Growth. Bangladesh Development Series Paper No. 18.

10. Harper, N. W. C., & Schneider, A. (2004). "Private Equity's New Challenge". McKinsey Quarterly, August 2004. 11. IRIS, University of Maryland. (2005). Report on Identification of Employment Oriented Export Sectors. Prepared for UNDP Bangladesh. Available at www.usaid.gov/bd/files/jobs_subsectors.pdf. 12. Fitch Ratings Report on Vietnam. (February 2008) 13. World Bank. (2008). Doing Business 2008. Available at www.doi.gov/oia/procurement/reports/2008%20World%20Bank%20EoDB %20Rankings.pdf 14. Wikipedia search: Diaspora. 15. Bangladesh Enterprise Institute. (2003). Reducing the Costs of Doing Business in Bangladesh. 16. Official website of The Heritage Foundation at www.heritage.org.

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Our Top Investment Ideas

AT Capital Research

Our Top Investment Ideas

Investment in Independent Power Producers (IPP) and Small Power Plants (SPP). (SPP) With significant energy needs in Bangladesh, power generation is a key driver in economic development. Power Purchase Agreements (PPA) with the government mitigates many external risks. Investment in private commercial banks To comply with Basel II many banks will struggle to meet capital requirements, and we anticipate consolidation in the industry. This will give rise to many opportunities in a sector that has yet to fully penetrate the wider economy. Investment in Vocational Training Colleges. Key to the capitalizing on global outsourcing and manpower exports, both low end and high end, is targeted training. Bangladesh can develop its comparative advantage given increasing labor costs in the traditional outsourcing/offshoring destinations such as India and China. Investment in country wide cold storage facilities. This will allow the development of a higher value-added agriculture export market. For the domestic market, it also reduces wastage and improves margins. Investment in pharmaceutical plants with certification for developed markets. markets. Contract/toll manufacturing for bulk drugs with foreign joint venture partners provides a means for leveraging a low cost base in accessing a global market. This also provides opportunities for LDC based pharmaceutical companies to develop international revenue streams after the TRIPs patent protection lapses in 2016. Investment in luxury hotels in Coxs Bazar, Chittagong and Sylhet. Only Dhaka benefits from high end hotels. Coupled with a coordinated national branding and marketing effort, promoting tourism provides significant investment opportunities. Investment in weaving mills mills and dyeingdyeing-finishing mills. mills There is a large demand-supply gap in fabrics and a shortage of weaving mills. Investment in modern technology, new machinery and modern production processes is a significant opportunity to profit from greater backward linkage/vertical integration Investment in world class medical facilities for medical tourism. With medical tourism a growing sector, Bangladesh could capitalize on this global shift, benefiting from geographic proximity to tourist destinations of South and South East Asia. Targeting NRBs should be a priority.

Asian Tiger Capital Partners

Syeed Khan Partner +(8801) 727261267 syeed.khan@at-capital.com

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FDI

Foreign Direct Investment (FDI)

Over the last decade, FDI as a share of GDP in Bangladesh varied between 1.4% in FY98 and 0.5% in FY04. In FY05, it rose to 1.3% due mostly to the large inflow of FDI to the telecommunications sector. As a ratio of gross investment, FDI varied between a low of 1.2% in FY04 and a high of 3.2% in FY98. Over the 1998-2007 period, the aggregate FDI inflow to Bangladesh was USD 5.51bn. There are three broad sectors of FDI inflows: infrastructure, manufacturing, and services. The shares of the three sectors are 46%, 27% and 27% respectively. Some very large FDI proposals are currently pending with the government. These include investment proposals made by Indian conglomerate Tata (USD 3bn), United Arab Emirates based Abu Dhabi Group (USD 2bn), UKbased Global Oil and Energy Ltd (USD 2.9bn), Malaysian Azimat Corporation (USD 900mn), and Contech Ltd (USD 900mn). Bangladesh has a number of positive attractions like low wage rate and steady macroeconomic growth, that can successfully attract the attention of foreign investors from both developed and developing countries. For a developing country like Bangladesh, increasing the level of FDI is likely to have a significant positive impact on export growth, the balance of payments and facilitate knowledge transfer into the country. Bangladesh has a bright future in terms of attracting a greater amount of FDI provided improvements are initiated in areas like bureaucratic processes, more effective marketing of Brand Bangladesh as well as the development of infrastructure. With a more focused FDI strategy, we believe it is realistic for Bangladesh to replicate the Vietnam experience of a tenfold increase in FDI over the 2000-2007 period. This suggests a target level for Bangladesh of USD 7bn annual FDI by 2015.

Asian Tiger Capital Partners

Md. Saif Noman Khan saif.noman@at-capital.com

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Why FDI for Bangladesh

Foreign direct investment (FDI) is a key driver of a developing countrys economic development. FDI not only brings investment capital, it also transfers a considerable amount of technical and managerial knowledge and skills, not only to the investee 1,2 businesses, but also the wider economy and domestic enterprises. Comparative analysis shows Bangladesh's investment incentives and regulations for FDI appear competitive with those offered by similar EM countries in the rest of Asia, at least theoretically. However, effective implementation of these measures, which is key to attracting higher FDI inflows, needs significant institutional reforms, radically reduced levels of control, better provision of essential infrastructure, perceived improvement in investment climate, and sustained socio-political 1 stability.

FDI in Bangladesh: Background

Several underlying factors have contributed to increasing the FDI inflow in Bangladesh, Bangladesh such as trade and exchange liberalization, current account convertibility, emphasis on private sector led development, liberalization of the investment regime, opening up of infrastructure and services to the private sector, both domestic and foreign, and above all the interest of foreign investors in the energy and telecommunication sectors. FDI however played a minor role in the economy of Bangladesh until 1980, a crucial year of policy change. The Government of Bangladesh (GOB) enacted the Foreign Investment Promotion and Protection Act, 1980 in an attempt to attract FDI. Except five industries, which are reserved for the public sector: defense equipment and machinery, nuclear energy, forestry in the reserved forest area, and security printing and minting, FDI is allowed 1,2 in every sector of the economy. FDI also has a positive impact on a countrys foreign exchange reserves reserves. One of the reasons that FDI might be positive for a countrys reserve position over the longer term is FDI-financed companies are largely export-oriented and one reason for exporting a greater proportion of their output than their local counterparts is that such FDI financed firms usually tend to have a comparative advantage in their knowledge of international markets, efficiency of distribution channels, and their ability to adjust and respond to the changing pattern and dynamics of international markets. Consequently it can be argued that the inflow of FDI might play an important role in Bangladesh in the long run in reducing the countrys existing trade 1 deficit. FDI in Bangladesh still constitutes a low share of GDP Over the last decade, the FDI/GDP ratio varied between 1.4% in FY98 and 0.5% in FY04. In FY05, the share rose to 1.3% due mostly to the large inflow of FDI to the telecommunications sector (Figure 1). As a ratio of gross investment, FDI varied between a low of 1.2% in 1,2,3 FY04 and a high of 3.2% in FY98.

FDI and export opportunities

FDI impact on import substituting industries

Share of FDI in domestic GDP

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Trend of FDI flow in Bangladesh

Source: Bangladesh Bank

From 1998 to 2007, the aggregate FDI inflows to Bangladesh were USD 5.51bn 5.51bn (Figure 2). Of this, new capital investment was USD 2.99bn (54%), reinvested earnings amounted to USD 1.63bn (nearly 30%), and intra-company loans constituted USD 0.89bn (16%) (Figure 3).
Figure 2: FDI inflows and associated outward remittances (USD mn) Fiscal Year Total FDI inflows Equity Reinvested earning Intra-company loans Outward remittances Dividend/profit Investment liquidation *Estimated 1998 603 349 181 73 40 0 1999 594 396 121 77 83 3 2000 383 153 81 149 149 1 2001 564 372 81 111 175 1 2002 394 230 85 79 195 3 2003 379 164 165 50 355 2 2004 284 111 161 12 338 11 2005 804 361 294 149 418 3 2006 745 447 199 99 396 4 2007* Total 460 5,510 403 2,986 266 1,634 91 890 569 2,718 5 31

Source: Bangladesh Bank

Source: Bangladesh Bank

After a relatively high inflow in FY98, there was a declining trend in FDI inflow up to FY04 with the exception of FY01. In FY05, there was an sharp jump in FDI inflows to USD 804mn. However, when FDI and debt inflows are seen in the context of associated remittances on account of dividend/profit repatriation, disinvestments and debt amortization, over the 10-year period (1998-2007), the outward 1 remittances constituted 65% of the total inflow.

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Sector distribution of FDI inflows

There are three broad sectors of FDI inflows: infrastructure, manufacturing, and services. The shares of the three sectors are 46%, 27% and 27% respectively services (Figure 4). In infrastructure sector, gas and oil was the main recipient of FDI amounting to USD 1.24bn (22.5%). On the other hand, there was rapid growth in FDI inflow to the telecommunication sector in FY05 which continued till FY07. Within manufacturing, the most significant recipient was the textiles sector amounting to USD 0.9bn (16.4%) out of a total of USD 1.37bn. The third group is the services sector where FDI inflows amounted to USD 1.35bn during the period out of which trade and commerce was the highest recipient with USD 0.91bn 1,3 (16.5%).

Figure 4: Sector split of FDI f rom 1998 to 2007

27% 46% 27%

Service Manufacturing Infrastructure

Source: Bangladesh Bank

Over the 19981998-2007 periods, gas and oil, textiles, and trade and commerce dominated the first half in terms of FDI inflow whereas telecommunication sector was the highest recipient during the second half of the ten year period. On the other hand, gas and oil, and trade and commerce sectors showed better performance during the last two years while the textiles sector experienced declining inflow of FDI in the second half of the decade (Figure 5).
Figure 5: Sector Wise Distribution of FDI Inflows (USD mn) Sector Infrastructure Gas and Oil Power Telecommunications Manufacturing Textiles Fertilizer Cement Chemicals & Pharmaceuticals Services Trade & Commerce Other Services Total *FY= Fiscal Year; **Estimated FY98* 238 231 0 7 145 117 2 3 23 220 173 47 603 FY99 249 124 101 24 150 129 0 2 19 195 116 79 594 FY00 106 50 56 0 163 144 0 5 14 114 44 70 383 FY01 319 139 175 5 134 113 4 13 4 111 35 76 564 FY02 197 75 101 21 123 67 25 28 3 74 48 26 394 FY03 120 23 35 62 160 77 5 77 1 99 49 50 379 FY04 131 61 26 44 64 32 23 6 3 89 55 34 284 FY05 461 169 30 262 219 75 51 87 6 124 102 22 804 FY06 FY07** 478 488 182 187 28 268 107 74 16 16 1 160 142 18 745 29 272 109 75 16 16 2 163 145 18 760 Total 2,287 1,241 581 965 1,374 903 142 253 76 1,349 909 440 5,510

Source: Bangladesh Bank

Figure 6 illustrates the total FDI inflow in Bangladesh over the last last 11 years from 1997 to 2007 from different countries across the world. world Figure 6 shows that near about 90% of annual FDI has been received from only 11 countries.

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Figure 6: Country-wise FDI inflow into Bangladesh, 1998-2007* (USD mn)

FDI inflow by source country

Country 1997 1998 1999 2000 Denmark 0.0 0.0 0.1 22.5 Egypt 0.0 0.0 0.0 0.0 Hong Kong-China 21.6 13.1 20.5 14.8 Japan 51.3 15.7 35.0 10.5 Malaysia 6.1 5.0 2.9 6.2 Norway 0.0 23.7 3.3 0.0 Singapore 2.8 0.5 1.1 1.9 South Korea 34.6 70.9 101.4 31.4 UAE 0.1 0.2 1.6 0.0 UK 255.9 40.9 35.6 157.0 USA 67.6 232.9 66.9 29.3 Others 135.2 173.5 40.6 305.0 Total 575.3 576.5 309.1 578.6 *Calendar year data for 1997-2005. FY data for 2006 & 2007

2001 4.0 0.0 5.8 2.2 0.3 0.0 1.6 16.8 0.9 52.9 29.1 240.9 354.5

2002 3.1 0.0 17.1 11.9 11.4 26.4 12.7 30.7 0.0 18.5 24.5 172.0 328.3

2003 14.0 0.0 11.7 17.5 13.4 21.9 3.2 24.5 16.7 83.6 32.1 111.6 350.2

2004 18.8 19.9 13.9 30.0 39.0 59.6 2.3 18.5 12.8 91.0 61.8 92.8 460.4

2005 18.3 48.4 53.1 46.4 33.1 53.5 97.5 29.9 55.5 152.8 141.8 115.0 845.3

2006 20.0 67.4 43.5 22.6 25.7 53.4 26.3 50.1 100.5 77.9 187.6 69.5 744.6

2007 10.1 123.5 63.4 28.8 45.7 77.4 11.8 30.1 62.0 123.7 161.5 54.8 792.7

Source: Bangladesh Bank

This leaves scope for exploring new FDI inflow destinations for Bangladesh. The recent flow of FDI from Egypt reflects their investment in the telecom sector of Bangladesh. Though in recent times we can see increased flow of FDI from the Middle East there remains scope for further FDI from that region. Though both UK and USA both has been large contributors to the FDI inflow, considering their share 1,2 of FDI in other developing economies they might be a good source to tap further.
Large FDI pipeline

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

Macro factors favoring FDI in Bangladesh:

FDI: Way forward for Bangladesh

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Setting up of new EPZs: A phased government program of setting up new EPZs to extend facilities to export oriented investors would attract FDI. The private sector may also be further encouraged to set up new EPZs like the Korea EPZ. Economic and commercial diplomacy: diplomacy Strengthening economic and commercial diplomacy is a key factor in attracting FDI in the present world characterized by rapid globalization and increasing competition. In this respect, improved bilateral relations with potential investor countries can act as a catalyst to increasing FDI inflows to Bangladesh. Moreover, it is important not only to improve relations with countries that have already invested in Bangladesh, but also to identify potential investors in other countries and undertake appropriate measures to attract them to invest in the country. Bangladesh has a bright future in terms of attracting a greater amount of FDI provided improvements are initiated in areas like bureaucratic processes, more effective marketing of Brand Bangladesh as well as the development of infrastructure. With a more focused FDI strategy, we believe it is realistic for Bangladesh to replicate the Vietnam experience of a tenfold increase in FDI from 2001 to 2007. This suggests a target level for Bangladesh of USD 6-7bn annual FDI by 2015.

References 1. Hossain, M. A. (2007). Impact of Foreign Direct Investment on Bangladesh's Balance of Payments: Some Policy Implication. Bangladesh Bank Policy Note PN0805. Mortaza, M. G., & Narayan, C. D. (2007). Foreign Direct Investment, Trade Liberalization and Economic Growth: Empirical Evidence from South Asia and Implications for Bangladesh. Bangladesh Bank Working Paper Series: WP 0712. Robin, I. A. (2006). Foreign Direct Investment: Impact on Sectoral growth in Bangladesh. Bangladesh Bank Policy Note PN0704. http://www.bangladeshnews.com.bd/2007/06/14/mega-fdi-plans-hang-inlimbo/ Accessed on March 15, 2008.

2.

3.

4.

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Capital Market

AT Capital Research Capital Markets Markets

Asian Tiger Capital Partners

The Bangladesh stock market has provided significant returns to investors over the last five years. Five years CAGR of DGEN- the benchmark index of Dhaka stock Exchange is 30%, while last year the index rose 86.6%, making it one of the best performing markets in the world. Despite the remarkable performance over the last five years, the market cap to GDP ratio is only 19%, the lowest among the South Asian emerging markets. Because of the size of the market, it has attracted little investor attention until recently. Foreign portfolio investment increased by 839% in 2007 to USD 129mn, although this still accounts for less than 2% of total market cap. Government plans to privatize State Owned Enterprises (SOEs), combined with a large pipeline of IPOs, especially from the telecom sector, should underpin the future growth of the stock market. We expect the market cap of the DSE will double within the next few years. The Bangladesh capital market is dominated by local investors, and is highly uncorrelated with other markets. It was unaffected by Indias May 2006 meltdown, and has so far shown resilience against the sub-prime meltdown. Despite the remarkable performance over the last few years and tremendous potential for future growth, the market is still trading at low multiples, relatively cheap versus other countries in Asia. We believe that further investment inflows by foreign funds along with the development of a larger domestic institutional investor base will cause market direction and valuations to become driven to a greater extent by the underlying fundamentals. The move away from news driven trading should reduce volatility. We also see a structural longer-term increase in demand for equities from foreign investors as Bangladesh moves into frontier fund or even broader EM indices. However, some degree of caution is justified in the run up to the elections at the end of the year which suggests there may be more attractive levels to build up more substantial exposure in early 2009. The near 40% decline in Vietnamese stocks in 2008, which is perhaps one of the closest regional comparisons in terms of the relative dominance of retail over institutional investors also gives grounds for a more defensive stance on Bangladeshi equities in the near term.

Mohammad Hanif
mohammad.hanif@at-capital.com

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The Bangladesh stock marketarket- an overview

Dhaka Stock Exchange comprises of 235 members

The stock market in Bangladesh consists of two exchanges, the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). The stock exchanges function within the regulatory gamut of Securities Exchange Ordinance and related by-laws and regulations. Among the investment banking and brokerage entities the principal institutions are the Investment Corporation of Bangladesh (ICB), the leading merchant banks, and commercial banks who are active with their own portfolios. The 235 members of the Dhaka Stock Exchange, the more important of the countrys two exchanges, fall 3 into this category. . The main institutional investors in the stock market of Bangladesh are insurance companies, commercial banks, Bangladesh Shilpa Rin Shangstha (BSRS), Bangladesh Shilpa Bank (BSB), Investment Corporation of Bangladesh (ICB), 5 provident fund, trusts, and pension funds of different organizations.

Banking sector comprises of 48.3% of total market cap.

The Bangladesh Stock Market has been growing rapidly and currently constitutes about 19% 19% of the country's gross domestic product (GDP) in 2007 against only 6% in 2006. On March 31, 2008, the total market capitalization of DSE was USD 3 11.8bn, compared to below USD 5bn in 2006. Among listed companies, banks dominate. dominate In March 2008 banks comprised 48.3% total market cap followed by fuel and power (12%), and pharmaceuticals (9.9%). In terms of turnover, financial sector (banks, NBFIs, Insurance) comprises of 58.9% 3 total turnover, while 39.1% of total turnover comprises only from banks.

Figure 1: Split of DSE market capitalization as of March 31, 2008 Bank Fuel & power Pharma Cement Others

24% 48% 6% 10% 12%

Source: AT Capital Research

DSE Performance The DSE General Index rose 86.6% for the 12-month period ending 31 December 2007 vs. +37.7% for the MSCI Asia ex-Japan Index. The DSE General Index fouryear CAGR (2004 -07) was +46.1% vs. +34.5% for the MSCI Asia ex-Japan Index for the same period. The DSE General Index correlation to the MSCI Asia ex-Japan 1 Index for the last 12-month period was positive, and strong at 0.9427.

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Figure 2: DSE versus MSCI, 20042004-2007 Figure 3: DSE versus MSCI, last 12 months

4 year CAGR of DGEN was 46.1%

In the 2nd quarter of 2007, DGEN rose 41.26% - the best performance globally.
April-July 2007 Fi gure 4: Stock market returns in selected c ountries, April 45 40 35 33.0 30.6 30 25 21.1 20 15 28.8 27.3 26.6 23.3 21.7 41.3

Return (%)

South Korea

Hong Kong

Slovenia

China

Bangladesh

Thailand

Bulgaria

Ukraine

Source: Bloomberg6

The January 11, 2007 move to the army-backed caretaker government had an adverse impact on the demand for bank loans with the anti-corruption drive increasing risk aversion among business men. For the 1H07, banks (all listed banks, excluding the govt and non- listed) lending growth was only 7%, whereas deposit growth was 10%. At that time banks had excess cash and they invested some of this money in the stock market. They were very active at that time by offering margin loan to retail investors as well. So the market had excess liquidity and there was a shortage of supply of good stocks, a combination that pushed Bangladeshi equities sharply higher. This in turn triggered further retail buying. Inward foreign remittance was also a factor behind the surge in the stock market in 2007. While institutional investors were active at that time and the market was rising upward, retail investors were confident enough to invest in the market. A portion of money that was sent to the retail investors by their relatives, who were working abroad, was invested in the market, thus triggering a further surge in the market.

FPI increased by 839% in 2007

Foreign Portfolio Investment (FPI) increased significantly by 839% in 2007. 2007 The benchmark DSE General Index saw a record 396% rise in turnover and a 139% increase in value in 2007. In the same year, foreign investors bought shares worth BDT 14.4 bn and sold shares worth BDT 5.5 bn. Foreign investors want growth28

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oriented markets and always look for new quality issues in sectors like telecoms, energy, power, gas and pharmaceuticals. The relatively stable political environment is another factor behind the rise in portfolio investment in the country's stock market by merchant banks. According to DSE sources, the banking, power, pharmaceutical 7 and cement sectors received most of the portfolio investment. Stocks have shown resilience to both electoral electoral risk and natural disasters. Historically, the market showed resilience on various political/electoral scenarios. For example, stocks were unaffected on the parliament election in 2001 (see below). In addition, even in the face of recent devastating flood and hurricane- Sidr in 2007, the market maintained its upward momentum.
Fi gure 5: Market performance during the natural disasterdisaster-Sidr on November 15, 15 , 2007
3,150 3,100 3,050 3,000

DGEN

2,950 2,900 2,850 2,800 2,750 2,700 Sid r

Source: Dhaka Stock Exchange

Fi gure 6 : Market performance during the 8th National Parliament Election on October 01, 01, 2001 720

1-Nov

3-Nov

5-Nov

7-Nov

9-Nov

11-Nov

13-Nov

15-Nov

17-Nov

19-Nov

21-Nov

23-Nov

25-Nov

27-Nov

29-Nov

700

680

DGEN

660

640

8th National Election

620

600

Source: Dhaka Stock Exchange

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9-Sep

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8-Nov

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17-Sep

21-Sep

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31-Oct

Bangladesh capital market is following the trend of Pakistan capital market development.

Market Development Lessons can be learnt on the development of Bangladeshs capital markets from the experience of Pakistan. The Bangladesh stock market can be compared to 2 Pakistans in the mid 90s by market cap/GDP. Their equity growth was primarily driven by privatization and the liberalization of foreign investment. There were 108 public sector enterprises (out of a total of 128) initially marked for privatization through public offering, outright auctions, and strategic sales to investors in 1994. By 1996, the number of enterprises to be privatized increased to 118. The injection of substantial public sector listings to the stock market has greatly transformed the sector distribution. The market changed from being textile-dominated (22 % of market capitalization in June 1992) to one that revolves around three to ten large29

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capital stocks. None of these top 10 stocks comes from the textile sector. In Bangladesh, the pace of privatization is increasing. increasing In 2006, the government floated DESCO and Power-grid with 25% shares of each already issued on the public market and a further 15% of each will be off-loaded within short period of st time. In the 1 quarter of 2008, the government floated Meghna and Jamuna - two other profitable State Owned Enterprises (SOEs) from the fuel and power sector. Over the past five years, the Asian Development Bank (ADB), along with the Securities and Exchange Commission, have developed new trading rules, public issue rules, settlements systems, and bond issuance rules to govern the market and introduce transparency. We believe, the capital market of Bangladesh is now poised to achieve a higher degree of stability, maturity, and regulation.
Figure 7: Development initiatives at DSE Year 1998 2004 2004 2004 2005 2006 Development initiative Automated Trading System started DGEN Benchmark index introduced Started Central Depository Services DSE-20 Index introduced Started Govt bond market Direct Listing Rules initiated

Government has started floating SOEs to the capital market.

Source: DSE Website3

To overcome the problem of traditional IPO system, SEC is about to introduce a new system called Book-building

As part of this development initiative, the SEC is about to introduce a new system of IPO called Book BookBook-Building. Building It has been argued that the traditional IPO system has a major drawback. In most cases, the offer price is determined by the NAV per share. This traditional system of IPO pricing significantly undervalues the company and is one reason why companies are reluctant to go public. Under this new book building method, the price will be determined by the market and the issuing company is expected to get a fair price for their stock offering. The Bangladesh Bangladesh Capital Market - short term outlook: Last year 14 new companies have been listed on the DSE through IPOs IPOs. Among them, Premier Bank (BDT 844mn) and International Leasing and Financial Services (BDT112.5mn) were the largest. The Bangladesh Stock market is small with 368 securities and market cap of USD 11.84 84bn 11. 84bn. bn Government privatization of State Owned Enterprises (SOEs) combined with a large pipeline of IPOs especially from telecom sector makes us optimistic about future growth of the capital market.
Figure 8: Key DSE statistics over 2003-07 DSE statistics No of securities No of public issue Market capitalization Average daily turnover (USD mn)
Source: DSE Website3

In 2007, 14 companies have been listed in DSE

2003 267 14 1.7 1.2

2004 256 3 3.8 3.3

2005 286 17 3.5 3.8

2006 310 7 4.7 4.8

2007 368 14 10.6 19.0

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Expected Expected future entrants to the market The process of divestment of the 3 remaining state-owned banks has already begun. At least 8 large profitable SOEs mainly from the power and energy sectors expected to be listed. Foreign-owned Telecom giants such as Grameenphone are expected to be IPOed in 2008. Remaining large Telcos are expected to come to the market in the next few years. The national airline (Biman) is expected to float 49% of its share to the public in December 2008. The Bangladesh Capital Market: long long term prospect The market market capitalization capitalization (of DSE) to GDP ratio is only 19%, one of the lowest in the world. world The current level of development of the Bangladesh market is similar to that seen in Pakistan and SriLanka in the mid 90s and the early 2000s respectively. Pakistan has a market cap to GDP ratio of 58% whereas it was around 15.6% in 2 1998. For Bangladesh, increasing FPI, new companies especially MNC and giant Telcos listing will help the capital market to grow. The market is dominated by local retail investors. investors Except mutual funds, participation of institutions is very low. This can be compared with the development of the US market in 1950 when institutional investors were only 4% of the market versus 80+ currently. We believe that the growth of the Bangladesh institutional market will occur more rapidly. According to Dhaka Stock Exchange (DSE) statistics, foreign investors from Europe and the US in 2007 injected BDT 8.9bn into the market, and have benefited from impressive capital gains. This in turn should bolster their confidence. Favorable Investment climate for foreign investors: Strong investor protection combined with favourable public policy climate has significantly increased the number of foreign entrants over the last year. Government investment regulations are firmly pro-business and pro-FDI, having never annulled treaties, concessions, or agreements with the private sector or foreign investors. Bangladesh has been ranked 17th in investor protection ranking by the World Bank. Among the more noteworthy foreign investment regulations/protections are: 100% foreign ownership of companies with no exit restriction 100% repatriation of investment and profit No tax on capital gain Tax rebate to encourage companies to be listed in DSE and CSE Reinvestment of repatriable dividend is treated as new investment. Investment opportunities in the Bangladesh Capital Market: The Bangladesh stock market provides significant opportunities both for local and foreign investors.

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High return with low risk: Among emerging markets, Bangladeshs risk-return trade-off is very attractive. With less than 20% volatility, the DSEs return in 2007 of 81.5% clearly exceeds the India, Pakistan, Hong Kong markets.
Figure 9: 12M risk and return, regionally

Source: Deutsche Bank report1

Expected listing listing of telecom companies: One aspect of growing the number of publicly listed stocks is fiscal incentives. For example, the government has decided to impose a 45% corporate tax rate on Telcos if they do not list on the stock exchange instead of 35% corporate tax. Grameenphone, the countrys largest mobile phone operator is expected to be listed in this year with the other major Telcos set to follow. International Diversification Opportunities: The Bangladesh stock market is dominated by local retail investors, and is thus less correlated with the rest of the world than other EM equity markets.
Figure 10: Correlation between indices in January 2008 Karachi 100 Karachi 100 (Pakistan) SENSEX (India) S&P CNX NIFTY (India) CSE (Srilanka) HANG SENG (Hong Kong) NIKKIE (Japan) STI (Singapore) FTSE 100 (UK) DGEN (Bangladesh)
Source: Dhaka Stock Exchange3

SENSEX 0.41 1.00

S&P CNX NIFTY -0.05

CSE

HANG SENG 0.39 0.94 -0.75 0.46 1.00

NIKKIE 0.80 0.91 -0.68 0.25 0.95 1.00

STI 0.23 0.29 0.30 0.57 0.23 0.27 1.00

FTSE DGEN 100 0.37 0.87 -0.69 0.59 0.89 0.91 0.40 1.00 0.15 -0.09 -0.84 0.01 0.66 0.62 -0.31 0.59 1.00

1.00

0.16 -0.09 0.27 1.00 1.00 -0.15

One reason behind the lower correlation of Bangladeshi stocks versus other EM equities is that no big hedge funds or international institutional investors are present in the market. One aspect of contagion is that when large institutional investors such as hedge funds lose money in one market, they are forced to sell other markets they hold to enhance their liquidity and potentially meet margin calls. So for example, if big hedge funds incur losses in US equities, they might try to recover the loss by selling in other markets 32

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like Europe or even EM. Here in Bangladesh, as no such hedge fund or big institutional investors are present, the market remains uncorrelated with the rest of the world. This is an attractive reason for foreign investors to buy Bangladeshi equities in terms of diversifying their portfolio. PrePre-IPO placement: As new companies are coming to the market, there is an opportunity for pre-IPO placements. For example, Grameenphone, the largest telecoms company is expected to be listed in this year. It is has been reported that the value of Grameenphone is approximately USD 3.75bn. They may look for private placement opportunities.

References: 1. Deutsche Bank. (2008). Bangladesh Primer: Introduction to the Market, Deutsche Bank AG/Hong Kong. Chou, C. Reforming Pakistans Capital Market. Available at www.adb.org/Documents/Books/Rising_to_the_Challenge/Pakistan/3-pakcap.pdf. Accessed on 25 March 2008. Official website of Dhaka Stock Exchange at www.dsebd.org. Official website of Securities and Exchange Commission, Bangladesh at www.secbd.org. Primary sources: brokers, analysts, and the authors personal experience with Dhaka Stock Exchange. Bloomberg at www.bloomberg.com. Accessed on 27 July 2007. Financial Express. (2008). Foreign portfolio investment encouraging in 2007. Retrieved from the website of Equity Partners Limited at http://www.eplbangladesh.com/guest_pdf_files/07/News.pdf. http://www.doingbusiness.org/ExploreEconomies/?economyid=17.

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3. 4.

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Banking

Banking

Asian Tiger Capital Partners

Though the financial sector is dominated by banks, the vast majority of the people do not have access to banking services. The banking system asset base is USD 30 bn, roughly 42% of the countrys GDP. By comparison, this ratio is more than 57% in Pakistan. There are 48 banks in Bangladesh. Despite their late entry, private commercial banks (PCBs) have the largest and fastest growing market share. Government owned banks are losing their market share while foreign commercial banks (FCBs) share is almost static. Banks in Bangladesh mostly offer traditional commercial banking products like deposits, trade finance, money transfer services and loan products. Recently, there has been a surge among FCBs and PCBs in offering technology driven products like ATMs, credit cards and debit cards. There have been some improvements in credit risk management of the banks in Bangladesh. Classified loans as a % of total portfolio has decreased from 41% in 1999 to 14% in 2007. Due to recurring losses, nationalized commercial banks (NCBs) collectively have negative capital of BDT 31bn. Fuelled by high trade and remittance growth, the commercial banking sector is expected to maintain its rapid growth rate. With their superior customer service and product capabilities, FCBs and PCBs are expected to benefit from market growth. Privatization of the NCBs will create large investment opportunities. The government is likely to gradually undertake privatization of NCBs. With their country-wide branch networks with access to large and varied customer bases, NCBs can be attractive investment targets for investors. To meet capital requirements under Basel II, the fast growing PCBs are expected to resort to tier II capital. Large new investments in the form of preferred stocks and subordinated debt are expected. Additionally, with many small players in the market, consolidation is anticipated to meet Basel II requirements.

Shahidul Islam, CFA

shahid.islam@at-capital.com

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The financial sector is dominated by banks. banks As the capital market is relatively underdeveloped, banks play a strong role in financial intermediation. Total banking system assets are approximately USD 30bn, whereas stock market capitalization is 4 USD 12bn. Sustained economic growth of 5%-6% and high growth of trade and remittance in the last 12 years has helped grow the banking sector. The asset base 6 is approximately 42% of GDP, compared to 57% in Pakistan . There still remains significant scope for further growth. The high growth of PCBs and privatization of NCBs will create significant investment opportunities in the sector. Rupali Bank remains an acquisition opportunity. opportunity The USD 450mn privatization of Rupali Bank, a national commercial bank (NCB), was almost finalized recently. However, the deal aborted with the buyer, a Saudi prince, pulling out. With the fourth largest branch network covering almost the entire country, a restructured and rationalized Rupali Bank under modern management and technology could provide a significant investment opportunity. Privatization of other NCBs The government has said it will privatize the other NCBs. With unparalleled country wide branch networks, NCBs can be attractive investment targets for investors. They provide significant opportunities for operational improvements, through rationalization, reduction of nonperforming loans and improved service provision. Capitalization of PCBs Though most of the private commercial banks seem to be well capitalized to support their existing asset base, they need additional capital to expand their businesses. All the PCBs, except two (Bangladesh Commerce Bank Limited and First Security Bank Limited), are listed and are expected to undertake rights issues, to raise expansion capital. Additionally, to meet the capital requirement under Basel II Tier 2 requirements, many of them may have to issue preferred stock and subordinated debts. Consolidation in the banking sector. sector. There are many smaller private commercial banks (PCB) that fall short of Basel II capital requirements. Basel II could be a driver for consolidation in the sector with benefits beyond simply shoring up balance sheets, leveraging client bases and branch networks, cross selling of products and cost synergies. Presently there are 48 banks operating in Bangladesh. Bangladesh The number has remained unchanged in the last 8 years. Despite keen interest from local investors, new bank licenses have not been issued by current and previous regimes. The 48 banks include 4 NCBs, 5 government owned specialized banks (SBs), 30 PCBs and 9 4 FCBs. These banks have 6,576 branches. The state owned NCBs and SBs have been losing their market share every year since the private banks started operations in the early 80s. Non Performing Loans (NPL) have been a nagging problem for NCBs and SBs. NCBs and SBs used to lend in the priority sectors without a systemized and rigorous assessment of creditworthiness of the obligors. In the past there have been concerns about overall lending practices in the NCBs.

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 opportunities in the form of equity or long-term subordinated debts abound

Figure 1: The distribution of branches of different bank segments

Urban branches NCBs PCBs FCBs SBs 1,238 1,295 49 155 Rural branches 2,146 490 0 1,203

Total 2,737 3,839 Source: Bangladesh Bank wesite4

Private commercial banks are increasing their market share 35

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rapidly at the expense of the government owned banks. Private banks as a group achieved 40% growth in operating profit in 2007 The PCBs are the newest entrants into the market but they are increasing their market share rapidly. While the market share of FCBs remains almost unchanged, that of NCBs and SBs has fallen sharply in the recent years. PCBs have been a real success story in Bangladesh. They have adopted new technology, gained efficiency and continue to grow fast. Almost all the new bank branches in the country in recent years were opened by private commercial banks. They account for roughly half of Bangladeshs stock market capitalization. Despite a tough business 7 environment in 2007, PCBs have shown 40% growth in operating profit in the year. Some of them have been very successful and are enjoying sustained growth of around 25% annually. The sector is not concentrated, with no single PCB enjoying 4 more than 10% of the market share. Foreign commercial banks are less active in Bangladesh than in other countries in the region. Their operations are concentrated in major urban areas like Dhaka and Chittagong. Citi, HSBC and Standard Chartered are the major foreign banks operating in Bangladesh, with Standard Chartered being the most dominant, particularly in high-end retail banking. FCBs largely target large corporates and local operations of multinational companies, acting as the counterparty in corporate and interbank foreign exchange transactions and serving as correspondent banks for local banks are major business for FCBs. Some regional and global players like Wachovia, ICICI and Mashreq bank are not operating as scheduled commercial banks in Bangladesh but are maintaining liaison offices in the country to support their correspondent banking businesses (eg LC confirmation, maintaining nostro accounts and executing fund transfer instructions). The banking industry in the country is far less concentrated than it has been in the past. . Four NCBs (Sonali, Agrani, Janata and Rupali) used to account for more than past 70% of banking assets and deposits 20 years ago. They account for more than 2/3 bank branches but their share of assets and deposits are now less than 35%. 4 Sonali is the largest NCB and largest bank in the country. Though corporate banking has been the major growth area for most of the FCBs and PCBs, retail banking business is increasing. As corporate banking has become increasingly competitive, some banks are targeting SMEs segments and increasing their focus on retail banking. Banks are also taking exposure to the microfinance sector through wholesale financing to micro finance institutions (MFIs).
Figure 2: The NPLs of different categories of banks NPL % NCBs PCBs FCBs SBs Total
Source: Bangladesh Bank2

FCBs have not penetrated the Bangladesh market as widely as they have in other countries in the region

Financial Indicators Bank deposits and credits have been growing 1515-16% annually in recent years. years. There has also been high growth in non-funded activities. Non-interest income in 2005 was 1.8% of total assets employed, which increased to 2.5% in 2006. This is due to expansion in trade and remittances, the main sources of non-funded income for the banks. Non-interest income accounts for a larger share of total income 2 among foreign banks than local banks. The banking sector has made great progress in reducing classified loans. Overall, classified loans were 41% of total loans in 1999, which has come down to 14% in 2007. This figure was 26.9% and 31.8% respectively for NCBs and SBs. The PCBs 2 and FCBs had classified loans of 6.11% and 1.5% of assets respectively.

26.9 6.1 1.5 31.0 14.0

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The reduction in NPLs in recent years is partly due to writing off some NPLs but also due to the implementation of more effective credit control processes and systems. The development of a credit information bureau, the money loan court, and improved risk management have facilitated greater efficiency. Credit Information Bureaus help lenders identify clients who have defaulted on their obligations to other financial institutions and Money Loan Court plays an important role in the fast settlement of default cases.
Figure 3: Outstanding loans and capital position of banks as of June 30, 2007 (BDT bn) Loans NCBs PCBs FCBs SBs Total 499.4 854.1 118.5 125.1 1,597.1 Capital -30.9 84.5 31.6 14.8 100.0

Capitalization Most of the banks belonging to the FCB and PCB categories meet the capital adequacy requirements. However, the NCBs and SBs suffer from capital shortfalls and some have negative capital. As per Bangladesh Bank (BB), the total capital of banks stood at BDT 100bn in June 2007 representing 6.2% of bank loans. Capital position of NCBs stood at BDT (-) 30.9bn, SBs BDT 14.8bn, PCBs BDT 84.5bn, and FCBs BDT 31.6bn. NCBs are suffering from negative capital due to their sustained operating losses. Most of the PCBs and all the FCBs have adequate capital. The capital of the banks is in the form of equity, paid up capital, statutory reserves, and general provisions. Tier II capital in the form of preferred stock or subordinated 2 debts are almost non-existent. Adoption of Modern Technology The rapid adoption of modern and innovative technologytechnology-driven products and services by the commercial banks is an encouraging trend. trend. ATM services are gaining popularity very fast. Customers use of online banking (the ability of the customers to execute transactions in any of the banks branches, not in the branch where the account was opened) is also expanding rapidly. Internet banking and tele-banking services are also growing fast. According to the Financial Sector Review by BB, between June and December 2007, the monthly volume of credit card transactions grew by 124%, debit cards increased by 112% and transaction through ATMs increased by 114%. During the same period, transaction through POS and SWIFT grew by 111% and 61% respectively. While FCBs and PCBs are introducing technology driven products in Bangladesh, state owned banks are lagging in adoption of new technology and 2 associated efficiencies .

Source: Bangladesh Bank2

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, Efficiency and Spread Shrinkage According to BB studies, the weighted average interest rate margin has shrunk slightly over the years. However, the current interest rate spread is still high in comparison to other countries. In September 2007, the weighted average interest rate spread was 6.16% in Bangladesh, 91bp higher than the 5.25% spread in 2 India . Typical banking fees, like LC fees and guarantee fees, are shrinking fast. Spreads in foreign exchange transactions are also narrowing. However, the fees and foreign exchange spreads in Bangladesh are still higher than those in other countries in the region.

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Regulatory Environment BB as a regulator has been fairly successful. The overall health of the banking sector, especially capital adequacy and asset quality, has improved significantly in recent years. However regulatory vigilance needs to be increased to avoid the recurrence of events like the failure of Oriental Bank. BB has been successful at improving corporate governance in banks. Financial disclosure standards have improved. Bank directors are no longer allowed to get involved in operational decisions of the banks. Lending to directors directly as well as the companies they own has been stopped. BB has also promoted and implemented Anti-Money Laundering rules. In addition to its own ratings based on capital adequacy, asset quality, management efficiency and liquidity, BB has made it mandatory for the banks to be rated by independent rating agencies. BB has also made publication and public disclosure of bank financial statements mandatory. BB has issued a number of prudential guidelines regarding capital adequacy, corporate governance and legal issues recently. These include strengthening a banks capital base and making them better prepared for adopting Basel II standards. In the near future, the banks will be required to maintain capital to riskweighted assets ratio of 10% as a minimum with core capital not less than 5%. Currently banks need to maintain 9% capital on risk weighted assets. As tier II capital is almost non-existent, bank capital is mainly in the form of equity. The paid up capital and the statutory reserve of all bank companies has been raised to a minimum floor of BDT 2bn. Basel II standards will be implemented from early 2009. Implementation of these regulations will help strengthen the financial system and will help bring greater discipline in the activities of the banks and financial 2 institutions. Corporate Governance There has been significant improvement of corporate governance in banks in recent years. Professionalism in management is more evident in banking than any other sector in the country. BB has taken some corporate governance initiatives recently. The number of members in the board of directors has been restricted to thirteen. The role of the CEO and role of chairman of the board have also been defined. As per BB directives, the chairman of the board of directors or chairman of any committee formed by the board or any director does not have jurisdiction for taking decisions in executive matters. BB has also made the CEO responsible for implementing the policies taken by the board and looking after all administration. BB has also directed the banks to establish audit committees formed by the board of directors. Several other reforms have also been introduced by BB to ensure good governance in all institutions 4 operating in the financial sector.

BB has defined the role of chairman, the board and CEO

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Better asset liability management and deeper interbank term money market can help avoid occasional liquidity crunch. Liquidity and Interbank Market Banks in Bangladesh need to maintain 5% of their customer liabilities as cash reserves with their BDT clearing account (non interest bearing) with BB. In addition, commercial banks need to invest 13% of their liabilities in government treasury bills. Traditionally the overnight interbank call money market was the source of liquidity for banks in Bangladesh. The repo facility with the central bank was introduced in 2002. Subsequently the interbank repo market has also evolved. However, the 4 trading volume of government treasury bills/bonds is still low. The interbank term lending market is thin. Therefore, banks need to depend on the call money market and repo window for liquidity management. Due to the absence of an interbank money market and a secondary market of government treasury bills, market liquidity and overnight interbank rates fluctuate abruptly. Overnight interbank borrowing rates sometimes shoot up to 20%. Risk management Banks lacked professional credit risk management capabilities in the past. Most of the banks did not have market risk management practices. As a result, some used to take large speculative FX positions 7/8 years ago which triggered big losses and depleted their capital. As a result, BB has introduced FX exposure related guidelines to the banks. Overall risk management of the banks in Bangladesh improved significantly in the last few years. As mentioned earlier, classified loans as % of the total loan portfolio have fallen from 41% in 1999 to 14% in 2007. Risk grading and risk-based pricing is almost an alien concept among local banks. As a part of their global practice, large FCBs perform risk grading, but the correlation between risk grades and loan prices are poor. It is mandatory for all commercial banks to use a due diligence template 2 called Lending Risk Analysis (LRA). BB has adopted several initiatives to improve the risk management practices of the commercial banks. In 2003, BB circulated "Guidelines on Managing Core Risks" to the banks for complying with five core risk management in banks. Those were a) Credit Risk Management, b) Internal Control & Compliance, c) Asset & Liability Management, d) Foreign Exchange Risk Management, and e) Money Laundering Risk Management. The guidelines were minimum instructions for the banks and the banks were asked to build up their own risk management manuals on the basis of 4 those guidelines. Outlook The sector is expected to maintain high growth and the branch networks are expected to spread towards rural areas fast As access access to financial services is still low in the country, country, we believe there are tremendous growth and investment opportunities in financial services. As the economy modernizes, the banking sector may grow even faster. In addition, banks are expected to increase their diversification towards capital market related activities. Banking services are also expected to spread into rural rural areas. In the past, due to fewer business opportunities, FCBs and PCBs were not convinced on the 39

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attractions of opening branches in rural areas. Only NCBs, as per government regulations and requirements, used to have a large rural network. However, things are changing rapidly. Attracted by the high growth of foreign wage earners remittances and rural savings, PCBs are expanding their branch network into rural areas. Therefore, major players in the sector are expected to have presence all over the country in the future. Recently a consortium of banks has decided to set up 9 a net work of 500 ATMs, 60% of which will be deployed in rural areas. intensify. International and regional The competition in the market is expected to intensify players are expected to increase or expand their operations when the sector is opened up. However, banks with technological and managerial superiority are expected to continue to enjoy a high level of profitability in the medium term. Consolidation is expected to happen in the medium medium term. Players with automated, country-wide operations are expected to enjoy a competitive advantage with foreign remittances and internal money transfer a high growth business. Therefore, there should be consolidation within the banking sector, especially among smaller, new generation PCBs. Anticipating consolidation in the industry; BB has published guidelines for bank mergers and acquisitions. It has been argued that uneconomic factors, like a sponsors prestige associated with being a bank director, may be an obstacle to consolidation in the near-term. However, we believe some smaller players will be forced to consolidate if Basel II capital regulations are applied stringently. Islamic banking is growing faster than conventional banking. The growth growth rate of Islamic banking is expected to remain higher that of conventional banking. Currently 6 commercial banks are operating as full-fledged Islamic bank. Ten other conventional banks including two foreign banks offer Islamic banking products. Priorities NCB NCB and SB Reforms While the recent corporatization of NCBs is a positive development, timely privatization is necessary to facilitate the commercial orientation of NCBs and SBs. The governments decision to merge BSB and BSRS is a positive development while steps towards eventual privatization should be taken. Continued efforts to privatize Rupali Bank should be a priority for the government. Market Infrastructure: BB has undertaken a project to implement an automated clearing system called Real Time Gross Settlement (RTGS). RTGS will eliminate time consuming manual clearing operations of the banks and will bring efficiency in money transfer and interbank settlement. Implementation of RTGS needs to be expedited. Risk Management: As mentioned earlier, thanks to some initiatives by BB, risk management practices in banks have improved greatly in recent years. However, banks need to manage their risk emanating from capital market exposure through own-account trading or margin lending. BB should implement clear guidelines in this regard.

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Development of a Fixed Income Securities Market: Fixed income securities market in Bangladesh lags behind those of its neighbors and other developing countries. Though in recent years BB has taken some initiatives, like introducing repo transactions, issuing longer tenor bonds and appointing primary dealers for acting as intermediaries for dealing in government securities, the country lacks a vibrant secondary market for government securities. This is important for establishing a treasury yield curve which will be the basis for pricing other fixed income securities. A vibrant secondary market for government securities can help bank treasuries better manage their liquidity and avoid occasional spikes of overnight interbank rate.

References: 1. World Bank Office, Dhaka (2008). Bangladesh Strategy for Sustained Growth. Bangladesh Development Series Paper No. 18. Bangladesh Bank, Dhaka. (2007), Financial Sector Overview. Volume III, Series I. Bangladesh Bank (2006-2007). Bangladesh Bank Annual Report 20062007. Official website of Bangladesh at www.bangladesh-bank.org. Deutsche Bank. (2007). Understanding Vietnam. DB Research. Akhtar, S. (2006). Address by the Governor of the State Bank of Pakistan at the Pakistan Banking Association, London, 12 November 2006. Reuters (2008). Bangladesh private banks profit up 40 pct in 2007. Available at http://in.reuters.com/article/companyNews/idINDHA10801020080116 The New Nation. (2008). Rupali Bank dropped from privatisation list. The New Nation Article on March 11, 2008. Available http://nation.ittefaq.com/issues/2008/03/11/news0841.htm. Accessed on April 6, 2008. Rahman, S. (2008). Huge expansion of ATMs planned nationwide: Cash Link Bangladesh, Euronet Worldwide tie up. Published in The Daily Star on March 28, 2008.

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Energy

Asian Tiger Capital Partners

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

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FDI increased by 72% from 1998 to 2007 in the energy sector

Overview
Bangladesh has an installed capacity of 5,275 MW which is 71% higher than the 1998 capacity of 3,091 MW. The private sector is generating around 25% of the countrys generation while in 1998 all power generation came from the public 7 sector. FDI of USD 1,822mn was invested from 1998 to 2007 in the energy sector 8 of Bangladesh which accounts for 33% of total FDI in the period. In 2007, peak demand stood at 4,500 MW, and while total theoretical generation capacity was 4385 MW, average maximum peak generation was only 3,717 MW. This resulted in service disruptions and blackouts on 364 days in 2007. With the supply-demand deficit for electricity continuing to rise, we believe there are many opportunities to invest in projects of varying sizes from traditional areas, such as 2 gas driven power plants, to more innovative sectors such as alternative energy.

Per capita electricity consumption lowest among developing nations

Consumption of electricity is low compared to other developing nations with per capita consumption of 147 KWh compared to India which has per capita usage of 480 KWh. Only Nepal has lower consumption (see figure below). This underlines the need for power sector reform. If Bangladesh grows more rapidly, per capita 1 electricity consumption and hence the energy crisis, will get progressively worse.

Fi gure 1: Per capita consumption of electricity in 2005

2,000 1,800 1,600 1,400

KWh/year

1,200 1,000 800 600 400 200 0

Source: International Energy Agency

Natural gas used for 86% of power generation. Reserves are depleting

Natural gas is currently the only significant source of commercial energy in Bangladesh, although proven reserves are estimated to start depleting from 2012. Natural gas, the only widely used indigenous non-renewable energy source, 7 accounts for around 86% of the power generation of Bangladesh. Bangladesh had recoverable (proven + probable) gas reserves of around 14 trillion cubic feet (TCF) 3,4 as at August 2007. The recoverable proven remaining reserve is around 8.4 TCF. Currently 17 out of 23 fields are producing gas. Since the last decade, gas consumption has been increasing at an average rate of 4 8% per annum. It is widely reported that about 500 MW power cannot be generated daily due to a shortage of gas supply despite there being enough generating capacity. Bangladesh has a total of eight production sharing contracts (PSCs) with ten IOCs with companies like Shell, Chevron, Cairn, and Tullow who have sizeable operations. Bangladesh is now offering its third offshore gas bidding round which will end on May 7, 2008. Under the bidding model, the country's naval 43

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area has been divided into 28 blocks for hydrocarbon exploration. Of the blocks, 2 eight are located in shallow waters and twenty blocks are in deep-sea areas. Gas is government regulated Gas distribution distribution remains regulated by Petrobangla, Petrobangla, a statutory body, operating under the administration of the Ministry of Power, Energy and Mineral Resources. Petrobangla is responsible for the exploration and development of mineral resources, overall control and coordination of mineral resources and implementation of production sharing plans with International Oil Companies (IOC). Currently there are eleven companies operating under Petrobangla, responsible for oil and gas exploration, production, transmission, distribution, and development and marketing of coal and hard rock. Coal is a significant second source of energy. Five good quality, low sulphur coal deposits, with probable reserves of 3.3bn metric tons, have been discovered in 2 Bangladesh. A 250 MW coal-fired power plant was commissioned in December 2005 with coal supplied from Barapukuria. London-based Asia Energy had submitted an investment proposal of USD 2.5bn in October 2005 to develop the Phulbari mine in northern Dinajpur district through the open pit system and set up a 1,000 MW power plant to be fired by its coal. But in 2006, the local community in Phulbari organized a large demonstration against the proposed open pit mine due to concerns over social and environmental impact - this halted extraction in the Phulbari coal mine. Further extraction of coal resources remains delayed due to the lack of agreement over mining methods among 2 experts. The dislocation and environmental debate on coal extraction also underlines the need for the government to develop a political consensus with fair and equitable compensation for any local residents dislocated by new mines. Around 8% of total power generation in Bangladesh uses liquid fuel. Bangladesh imports about 1.2mn tonnes of crude oil along with 2.6mn tonnes of refined petroleum products per annum. Only the Eastern Refinery in Chittagong, with a capacity for 1.5mn tonnes of crude oil, meets the required standards. The Saudi Hitech International Group is planning to set up a 5.1mn tonnes oil refinery in Chittagong through a management partnership deal with Cosmopolitan Oil Refinery Management Ltd. This refinery is expected to be three times bigger than the Eastern refinery with investment of USD 3bn and forecast annual turnover of USD 8 7bn. Renewable energy provides a significant potential source of energy with benefits of reduced negative environmental impacts, provision of electricity in remote locations and reduced reliance on fossil fuels which are either imported or depleting. Power Cell in a study paper has estimated that around 2,200 MW of power could be generated using alternative energy sources. The government plans to increase power output using renewable resources by 10%. Wind energy, bio gas and solar energy are particularly suited to the Bangladesh climate. To make renewable energy economically viable first world funds and government subsidy plays a vital 3 role. Solar power introduced in 2002. Currently 4 MW of power is being produced by home solar systems. Experts suggest that solar energy has the potential to provide up to 300 MW of power. There are more than 100,000 solar home systems that 44

Significant probable coal reserves remain untapped

Liquid fuel contributes to less than 10% of the power generation

Significant opportunities in renewable energy

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have been installed by providers including Grameen Shakti, Rahimafrooz and the Infrastructure Development Company Limited (IDCOL). World Bank, Asian Development Bank and Bangladesh government are subsidizing solar energy 3,10 mainly in off grid areas to encourage renewable energy expansion. It has been estimated that 600 MW of powe power ower could be generated from bio mass and around 300 MW from cogeneration. cogeneration A project in the rural area of Gazipur is generating power of 225 KW and serving 500 families using sugar cane and rice 5 husk as raw materials. Wind energy utilization in Bangladesh is in the early stages stages of development. development Wind turbines with generation capacity of 1 MW are operating in Feni and recently another plant with a number of turbines has started its pilot operation in Kutubdia 10 Island with the same capacity. Hydropower potential only for mini/micro units. Currently only 230 MW of conventional hydro power is utilized in the Karnafuli Hydro Station, which is the only conventional hydro-electric power plant in the country. The scope for conventional hydropower generation is very limited in Bangladesh because of its flat terrain except in some hilly regions in the northeast and southeast parts of the country. However the abundance of canals, tributaries of main rivers (Karnafuli, Shangu, Matamuhuri) as well as small waterfalls suggests there is significant potential for 7 developing mini/micro hydropower power generation. Fiscal incentives to encourage private investment. investment Significant features include the exemption from corporate income tax for a period of 15 years, allowing repatriation of equity freely, tax exemption on interest on foreign loans and the avoidance of 12 double taxation in case of foreign investors. Investment Opportunities Significant investment opportunities in off shore gas exploration. Experts are optimistic that Bangladesh has prospects of discovering major petroleum resources in the deep waters of the Bay of Bengal. However no tangible steps have been taken so far to explore Bangladeshs deepwater energy resources. India, Myanmar, Thailand, all achieved significant successes after years of persistent efforts. By contrast, resources in Bangladeshs territorial waters remain largely unexplored. According to Petrobangla statistics, if the country's proven reserve of 8.4 TCF gas starts depleting from 2012, after 2015 the country will require new reserves to meet growing demand. It has been estimated that 26 TCF of additional gas will be required by 2025 to support an estimated 7% gross domestic product (GDP) growth. International oil companies (IOCs) have been involved in exploration and 2 development of gas. Investors can set up a refinery plants plants in Chittagong or Mongla. Mongla We believe investors should focus on this sector as the Government-owned Eastern refinery, the sole major refinery, is meeting only 40% of the countrys requirement, while the remainder is imported. The Saudi Hitech International Group is planning to set up a 5.1 mn tonne oil refinery in Chittagong through a management partnership deal with Cosmopolitan Oil Refinery Management Ltd. With rising oil prices the oil refinery 45

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industry continues to look attractive.
13

Independent Power Producers (IPP) can be a very profitable investment for both local and foreign investors. investors Currently IPPs have installed capacity of 1397 MW 6 which is roughly 25% of the total installed capacity of the Country. At present major IPPs in the market include AES, Summit Power Co. Ltd., Westmont and Bon Consortium. The proportion of IPPs power generation is growing significantly. With the Power Purchase Agreement (PPA) provided by the government, many external risks are also mitigated, such as currency devaluation, gas price escalation, regulatory risk and collection risk. Gas prices offered to IPPs are also very cheap at 11 around USD 1 / MSCF. Small power plants plants (SPP) provide a significant opportunity with lower capital investment. IPPs with capacity of 10 to 50 MW are considered as SPPs. All the IPPs are run with natural gas. It remains challenging to ensure a reliable source of sufficient gas supplies for large power plants until new gas fields are discovered. As SPPs require less gas, it is more feasible and profitable given current supply constraints. SPPs are operated on a Build, Own and Operate (BOO) basis. They require less time to complete the tender process and require investment of around 5 USD 7mn for a 10 MW plant with estimated IRRs between 30 to 40% . Currently 12 7 to 15 companies have invested in SPPs. While political consensus over further coal mining remains an an unresolved issue, issue, we believe opportunities remain for using coal as a significant means of power production. To quicken the process for utilization of coal resources the government is planning to adopt a national coal policy. A review committee will be constituted to finalize the draft coal policy, which was recently reviewed by an expert panel. The coal policy would neither be company specific nor mining method specific. The government is formulating an attractive financial incentive package for mine developers. The draft policy aims at raising coal-fired power production to 20%, 2 from current 3% of the total power generation by 2015. As such there are significant investment opportunities in coal extraction and coal fired power plants. Aside from domestic supply, good quality coal can be imported from China and Australia. Bangladesh is planning to install a nuclear power plant by 2015, 2015, with generation capacity between 700 MW to 1,000 MW to meet the country's mounting electricity 14 demand. The total investment required in setting up a nuclear plant is anywhere between USD 1.0bn and USD 1.5bn, according to sources from the Bangladesh Atomic Energy Commission (BAEC). The supply chain for a nuclear power plant is shorter than gas, coal or liquid fuel based power plants. Nuclear power plants require multi-billion dollar investments for construction and maintenance though the fuel required for such plants is very cheap compared to costly fossil fuel or gas required by conventional power plants. Russia has offered to provide technical support in the proposed nuclear power plant in Rooppur. Also, Daewoo Engineering, a South Korean company, has reportedly offered to build and operate 8 a large-scale nuclear power generation plant in Bangladesh. Installing environment friendly Solar Home Systems provide a compelling investment case. Power Cell estimated that if all the roofs of Dhaka city install solar panels this could generate around 300 MW of power which could serve the demand 46

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for all fan and lights used residentially. Solar energy also provides a significant opportunity for rural development, with 80% population of the rural area having no access to electricity. It has been estimated that if wind turbines were installed along the coast line, 1,000 MW of power could be generated. Bangladesh has 724 km long coastal belt, around 200 km hilly coastline and about 50 islands in the Bay of Bengal. The strong south/south-westerly monsoon wind, coming from the Indian Ocean and hitting the coastal areas of Bangladesh from March to October, are a potential source for wind energy. Wind energy could also be used in shrimp farming, salt / ice production, 3 vegetable irrigation and domestic/household use. Biogas is a growing source of power generation. Biogas plants are operated by Grameen Shakti, IDCOL, Local Government Engineering Department (LGED) and Bangladesh Rural Advancement Committee (BRAC). Biogas can be produced from pulp of sugar cane, rice husk, urban waste and poultry waste. The added advantage of biogas is the slurry can be used as good quality organic fertilizer. This 9 sub sector is still in its infancy with many opportunities for growth. Conclusion The Government has taken many initiatives to encourage private and foreign investors to invest in the energy sector in Bangladesh, particularly through IPPs and SPPs. An adequate and reliable supply of electricity is an important pre-requisite for increasing FDI and achieving Bangladeshs aim of becoming a Middle-Income Country. The Government has set the goal of providing electricity to all citizens by 2020. To achieve this ambitious target, broader participation of both local and foreign investors in the power sector is critical, ensuring that all the energy sources are maximized both locally and domestically. We believe energy remains one of the most attractive sectors for global investors to consider.
11

References 1. International Energy Agency database of statistics on various countries available at http://www.iea.org/Textbase/stats/index.asp. Accessed on March 29, 2008. Website of Energy & Power at http://www.ep-bd.com/.. Accessed all the 29 issues from January 1, 2007 to March 15, 2008. Website of Energy Bangla at http://www.energybangla.com/ Power Cell, Asian Development Bank, & Nexant. (2006). Power System Master Plan Update. Available at http://energybangla.com/upload/Power.pdf Primary sources: interviews with IDCOL Officials. Website of Power Cell, a division of Ministry of Power, Energy & Mineral Resources at http://www.powercell.gov.bd/ Power Cell. (2006). Bangladesh Power Data Book. Available at energybangla.com/upload/Bangladesh%20Power%20Data%20Book.pdf. 47

2.

3. 4.

5. 6.

7.

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8. Robin, I. A. (2006). Foreign Direct Investment: Impact on Sectoral growth in Bangladesh. Bangladesh Bank Policy Note PN0704. Website of Local Government Engineering Department (LGED) at http://lged.org/sre.

9.

10. Website of Renewable Energy Information Network at http://www.lgedrein.org/database.php?pageid=21. 11. Primary sources: interviews with officials of Rural Electrification Board. 12. Ministry of Energy and Mineral Resources. (2004). Private Sector Power Generation Policy of Bangladesh. Available at www.powercell.gov.bd/images/additional_images/PSEPGPB.pdf 13. Website of Eastern Refinery Limited at http://www.erl.com.bd/erlwebsite/home/corporateprofile.html 14. Rahman, M. A. (2007). Nuclear power plant to be installed by 2015. Article published in The Financial Express on December 25, 2007). Available at http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=20570

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Infrastructure (Non-Energy)

Infrastructure (Non(Non-Energy)

Bangladesh is a small country with a large population. It has very limited resources and assets, i.e. restricted land area, capital and existing facilities to build its infrastructure on. Investment in infrastructure system is critical if the country is to sustain and improve its economic outlook. Dhaka city is densely populated with severe traffic congestion. Due to the low availability of land for road expansion, one government proposal is the installation of an underground/subway metro rail. The high density of city dwellers makes such an investment a potentially attractive commercial opportunity. Bangladesh with its high density of roads, makes road transportation another possible investment opportunity. For example, with a relatively underinvested bus sector with a large client base, a higher quality, large scale national intercity bus operator is a commercially attractive proposition for the private sector. Mongla port has substantial expansion potential. The key to its revitalization as the countrys second port is investment in its operations and in its complementary infrastructure. There is a need for dredging the Pushur river and building the Padma bridge which will connect the port to commercial hubs, mainly Dhaka, Chittagong, and other major land ports of the country. In Chittagong port, investment in setting up an adjacent private port and a deep sea port in the Bay of Bengal, could make it a competitive and credible regional commercial hub. Bangladesh, if connected with the Asian Highway, has the potential to act as the transit route for trans-national freight transport. Integration with the Asian Highway is a prerequisite for investment in sea ports to be viable. It will also facilitate the growth of other rapid growing large and medium scale industries, such as transportation, support and maintenance facilities, hotels and restaurants, and fuel companies. These are all further investment opportunities for private sector players. There are interesting lessons to be learnt from around the world in large infrastructure projects such as rail and toll roads where Public Private Initiatives have been extremely successful in achieving both operational and financial success.

Asian Tiger Capital Partners

A M Ashfaque Bari Nahid nahid.bari@at-capital.com

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Major opportunities in infrastructure
A significant enabling factor in economic growth, and Bangladesh fulfilling its potential, is a robust and supportive infrastructure. The non-power sector, from roads to bridges to rail and ports, has many opportunities for investment after years of underinvestment. With a focused, long term, commercially viable, investment strategy one could facilitate significant improvements to state owned and operated transport systems, improve the operational efficiency of the two major ports and position Bangladesh as a hub in the Asian Highway. Cooperation between the public and private sector is key to its successful execution. Subway

Underground metro rail in Dhaka

The Government, in the recent years, has taken the strategic decision to increase private sector participation in infrastructure development. After a long consultation period of considering various options (i.e. subway, flyovers, elevated expressway) to alleviate congestion in Dhaka, the Ministry of Communications approved the Strategic Transport Plan (STP) for installing an underground railway system in the capital. Contech Ltd, a local firm, conducted a feasibility study last year and proposed a 52 km subway with an estimated cost of BDT. 5200 crore (USD 750 mn). The total subway project is forecast to take 10-12 years to complete. The initial 1 implementation of the STP will take 2 years to complete. Bangkok has both an elevated expressway and an underground metro. The underground rail, Mass Rapid Transit (MRT), was built on a concession basis, by a private company, Bangkok Metro Company Limited (BMCL). Largely, all civil infrastructures were provided by government sector, the Mass Rapid Transit Authority of Thailand (MRTA) and handed over to BMCL under 25-year concession agreements. BMCL provides M&E equipments, including electrical trains, signaling systems, SCADA, communications, and PSD for the subway project and fully 2 operates and maintains the system. Similar kinds of arrangements with the private sector may facilitate faster completion times with reduced levels of budgetary expenditure. Railways

Metro rail: Lessons to be learnt from Thailand

Bangladesh Railway: reform plan

The Bangladesh Railway has a total network of 2,835-route kilometer (Broad Gauge 659 km, Dual Gauge -375 km and Meter Gauge 1801 km). It has been incurring significant losses for the last two decades. In the recent years, its yearly loss has been around BDT 500 crore (BDT 5bn). In order to turn BR into a commercially and financially viable organization, run in a more efficient manner, the Government has given it more autonomy and changed its organizational structure. The ADB is set to provide the Government with USD 430mn for its development and reform. The funds are being given with the provision that Bangladesh Railway is turned into a public 3 limited company (PLC) when the reforms have been completed. The Indian Railway has seen a marked turnaround from a huge loss incurring giant to a profit making company. In a marked departure from its legacy, the focus on capacity utilization, reduction in unit costs, and improvement of quality of service has yielded remarkable results. Recognizing the need for substantial financial and managerial capital, the Railways Ministry have been actively seeking and encouraging increased private sector involvement. The first steps in this direction 50

Revolution in Indian Railway

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have been the awarding of container operation licenses to 14 private players. Other areas earmarked for Public Private Partnership (PPP) include projects like the dedicated freight corridor, commercial utilization of surplus railway land, and creating 4 inland container depots and warehouses. Bangladesh Railway could emulate this example by incorporating the private sector into its operations. Outsourcing or selling, both core and supporting functions, to private sector participants, leasing out its non-operating assets, building new rail line tracks could bring significant commercial and operational advantages. Roads

Maintenance of the vast road network

Bangladesh, though a small and densely populated country, has one of the highest road densities in the world. This indicates not only a greater need to maintain this vast network of roads, but also the potential of commercially viable private sector investments in maintenance/repair and new construction given its high density usage.
F igure 1: Road densities in selected countries
80 70
Road Density (km roads per 100 km2)

60 50 40 30 20 10 0

USA

Malaysia

Thailand

China

India

Korea

Bangladesh

Sri Lanka

Nepal
8

Source: Bangladesh: Public Expenditure Review, Roads, Highways and Rural Infrastructure, 2001

Recurrent flooding, high intensity rainfall, and a high incidence of tropical cyclones provide a challenge in the construction and maintenance of a reliable road system. Every year, miles of roads are destroyed and the Government of Bangladesh (GOB) struggles to repair them as well as constructing new roads at the same time. There are many areas where private sector participation could improve the transport network. For example, with a relatively underinvested bus sector and given the large client base, a higher quality, large scale national intercity bus operator is, we believe, a commercially attractive proposition for private sector investors.

Privatized toll road

The introduction of privatized toll roads can ease the stress on the current road system and give the country a better maintained and operated transport network. Valuable lessons for effective private participation in projects can be learnt from around the world. A case study of a successfully privatized Build, Operate and Transfer (BOT) infrastructure project in Argentina is the Autopistas del Sol (ADS) project. Autopistas del Sol was awarded in 1994, a 20-year BOT toll-road concession for the construction and operation of the Buenos Aires city northern access highway 51

Toll roads in Argentina

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system. The project developers Construcciones, Impreglio and Iglys. were Sideco Americana, Gragados Y

The initial project cost of approximately USD 400mn was financed by a bank syndicated project financing facility arranged by Citibank and an export credit facility provided by the sponsors. Additionally, the sponsors provided to the lenders full guarantees covering completion risk and limited guarantees covering certain political risk after completion. The security package consisted of a security interest over accounts receivables as well as over indemnification rights of ADS payable by the Argentine government in the event of expropriations, nationalization and early termination of the concession. There was no governmental support provided for the project and its financing. The project was a success, both operationally and financially. From an operational standpoint, the project facilities were completed according to schedule and specifications providing Buenos Aires with a state-of-the-art highway system at a reasonable cost for the consumers and without any significant cost for the Argentine budget. From a financial viewpoint, approximately one year after project completion, Citibank and ADS were able to arrange a two-tranche USD 380mn Yankee bond offering for the purpose of taking out the commercial bank facility. Such a project bond issue was the first Latin American Yankee bond toll road financing ever. It successfully overcame hard selling challenges, such as no US GAAP-required information (only Argentine GAAP), long-term maturity (12 years) compared to the 5 term of the concession (20 years), BB-credit rating and significant refinancing risks. Inland Waterways and Ports

Inland water transport

The private sector is the major player in inland water transportation sector. Most of the vessels, both public and freight, are owned and operated by the private sector. Investment in this sector, targeting the niche market of upper class luxury commuters, can be a highly profitable venture, as could investment in operators providing transport to the general population Bangladesh currently has two major ports, Chittagong and Mongla. Chittagong is handling more than 80% of the countrys export-import trade while Mongla port is left largely under-utilized. The export-import trade of the country is increasing by more than 20% every year, but the capacity of Chittagong port has not been expanded in line. Rather it is overloaded with the increasing number of ships coming to load and offload. Investment is required to construct more jetties in the Chittagong port, build private ports, and construct more container depots A deep sea port in the Bay of Bengal will likely open up several other investment opportunities. Integration with the Asian Highway could place Bangladesh as a regional commercial hub. If a fuel pipeline, connecting the deep water port with transnational oil supply line is built, the port can flourish as a refueling station for shipping lines. The Malaysian Experience The Port of Tanjung Pelepas is a deep water port for container ships located on the eastern mouth of the Pulai River in south-western Johor, Malaysia. Receiving its 52

Chittagong port: needs to expand its facilities

The deep sea port

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Success story: Port of Tanjung Pelepas of Malaysia
maiden vessel on 10 October 1999 on a three-month trial operation, it set a world record as the fastest growing port with 1mn TEUs (Twenty-Foot Equivalent Units) of containers handled after 571 days of operations. The port continues to enjoy spectacular growth. At the end of 1999, the terminal handled 20,696 TEUs, which rose to 418,218 TEUs in 2000, 2.05mn in 2001, and 2.66mn in 2002, 3.87mn TEUs in 2003 outstripping Port Klang and establishing itself as Malaysia's largest port. In 2004, it registered a 15.2% increase to 4,020,421 TEUs, and came in as the world's 16th busiest container port. In 2005, PTP handled 1 4.2mn TEUs, and in 2006 an estimated 4.6mn TEUs. In 2007, PTP handled a further 5.5mn TEUs, a growth of 14.5% compared to 2006. It has achieved this growth by providing alternative to the shipping lines, which were dependent on 6,7 Singapore. Bangladesh, in a similar way, can provide an alternative option for the shipping lines doing business in the region. The deep sea port could act as a transit port; vessels can offload containers here for others ships to upload. Bangladesh can also, like Singapore, Hong Kong and Malaysia, earn significant revenues from a deep water port.

Mongla port needs investment

Mongla Port, has the potential to be an alternative to the Chittagong Port, but has been left largely under-utilized. This port can be a great source of revenue if an effective road and rail network from Mongla to Dhaka and other commercial centers of the country is established and the rivers of Pushur and Mongla are properly dredged so that the incoming ships have the water depth that is needed for their safe movement. Selected Investment Opportunities

Underground metro system

There is a large investment opportunity in the underground metro rail system in the city of Dhaka. The Government of Bangladesh has recently approved the Strategic Transportation Plan (STP) to build a 52 km subway in Dhaka which will require BDT 5,200 crore (USD 750mn). This project will take 10-12 years to complete. The subway system will give the city dwellers an alternative mode of transport, which will be free of traffic jams and take less time. The high population density and high capacity of the subway system will bring the fare down to an affordable level, while also making it an attractive commercial opportunity. Mongla port has existing port facilities and huge assets (land, building structure etc.). There are investment opportunities in this port. Proper dredging of the Pushur river (investment requirement of BDT 50 crore, about USD 1mn), construction of the bridge over river Padma connecting Mongla with the major commercial centers, including Dhaka, installing new container depots and modern technology support would make Mongla port a profitable investment and revitalize Bangladeshs second port. Pacific Consultants International has completed the first phase of a feasibility study of a deep sea port in the Bay of Bengal. According to the report, the deep sea port will be constructed in three phases, it will require an investment of BDT 46,000 crore (USD 6bn) and the entire project will be completed by 2055. While the government is still considering this project, we believe investment in this project may offer 53

Mongla Port

Integration with the Asian Highway

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significant potential returns for the investors. Integration with the Asian Highway and a fuel pipeline connecting this port with transnational fuel supply will open up global trade opportunities and greater revenues for this port. Conclusion The strategic importance of infrastructure, large capital requirements and long term, predictable revenue streams make infrastructure projects extremely attractive for investors both locally and globally. After years of underinvestment coupled with strong GDP growth, it is essential that investment is made in this sector. If Bangladesh is to exceed its current trajectory and aim to be an MIC in the future. The backbone in infrastructure, whether that be roads, rail or water, needs to be improved. With vast global pools of infrastructure funds looking for projects to invest in more than ever before the challenge for Bangladesh is to be able to package and present the opportunities.

References

1.

www.bangladeshnews.com.bd from the following links: http://www.bangladeshnews.com.bd/2006/09/07/dhaka-subway-ministryasked-to-go-ahead-with-proposal/ http://www.bangladeshnews.com.bd/2008/01/15/52b-transport-plan-fordhaka-okayed/

2.

Wikipedia search Bangkok Metro. Available at http://en.wikipedia.org/wiki/Bangkok_Metro. Accessed on March 28, 2008. The Financial Express, March 17, 2008, http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=28296 KPMG. (2007). International Railway Conference New Delhi: A Background Note. http://www.kpmg.de/docs/International_Railway_Conference_Background_ Note.pdf Buljevich, C. E., & Park, Y. S. (1999), Project Financing and the International Financial Markets, pp 218-220. Springer. Wikipedia Search. Available at http://en.wikipedia.org/wiki/Port_of_Tanjung_Pelepas Official Website of Port of Tanjung Pelepas at http://www.ptp.com.my. Accessed on March 27, 2008. World Bank & Public-Private Infrastructure Advisory Facility. (2003). Private Solutions for Infrastructure in Bangladesh.

3.

4.

5.

6.

7.

8.

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Agriculture

Agriculture

Agriculture, comprising crops, forests, fisheries and livestock accounts for more than 20% of GDP and employs over 63% of the workforce of Bangladesh. The agriculture sector has a large, underserved domestic market that provides opportunities for many investments along the value chain. There is a huge gap between the domestic demand and domestic supply of seeds and fertilizers that can be filled by large-scale investments. Only 17% of the domestic demand for milk is met by the domestic supply. There is a scope for sizable milk production by importing high-yield breeds of cattle. Only a few companies are exporting vegetables and potatoes to the Middle East, and European markets. A number of companies are looking for joint venture partners to expand their operations. There is a shortage of cold storage facilities and those that exist are extremely profitable. This supply deficit, results in various vegetables, in particular, potatoes, being sold at more than a 25% discount. We believe 30-50 more cold storages with capacity of 4,500 metric tons each, can be set up in north Bangladesh. Growing global demand for Halal food presents export opportunities. The only firm that exports Halal meat is looking for equity partners to expand its operations. Global market trends for eco-friendly products favor investments in jute and jute-related industries. Private equity buyouts of distressed state-owned jute enterprises could provide investment opportunities. Niche areas such as frozen fresh water fish and the production of aromatic rice also have significant potential. Innovation opportunities exist in the areas of shrimp production in paddy fields, growing strawberries, and high-yielding crops.

Asian Tiger Capital Partners

Abdullah Ibneyy Shahid
abdullah.shahid@at-capital.com

AbdullahAbdullah-AlAl- Farooq
abdullah.farooq@at-capital.com

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

The largest employer in the country

Crops dominate with rice occupying the major share

Figure 1: The composition of AGDP of Bangladesh in 20062006- 07

8% 14% 56% Crops & vegetable Fishery Livestock Forestry

22%

Source: Bangladesh Economic Review 2007

Fisheries experienced rapid growth from 1980 to 2000

Among Among nonnon-crop agriculture, fisheries have experienced rapid growth from 1980 to 2000, increasing its share of AGDP from 10 % to 23%. Since 2000, however, growth has slowed. Poultry experienced above 6% growth over the second half of the 1 1990s, while livestock has not grown. Rice production contributes about twotwo-third of the total crop value. value The yield in rice in Bangladesh is lower than that in East Asian economies but better than that in India and Pakistan. Wheat yields in Bangladesh are lower than those in the East and South Asian economies. Maize production has grown significantly, due to productivity from high yield variety (HYV) seeds and the high demand for maize as poultry feed. There was 7% growth in potato production from 1990 to 2004, mainly due to the construction of the Jamuna Bridge, which connected rural growing areas with central distribution systems in Dhaka. The growth in jute, sugarcane, oilseeds, 1 and pulses has fallen over a decade due to the lack of investment in technology. Shrimp is the second largest foreign exchange earner after the RMG industry and employs 600,000 workers. However, the growth in shrimp exports has stagnated since 1996 due to the shrimp farmers inability to meet various sanitary, phyto1,11 sanitary, and other quality requirements of the buyers. 56

Rice production commands the highest value addition among the crops

Rice and wheat needs productivity boost

Shrimp, the second foreign exchange earner has become stagnant

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High import dependence in rice, wheat, and oilseeds Agricultural imports are mainly rice, wheat and oilseeds. Fertilizer constitutes 2.1% of imports of the country. Imports of key agro-products such as rice, wheat, and oilseeds grew 180% from 1995 to 2005 because of low levels of domestic productivity, rapid urbanization using up cultivable land and diversion of resources to 1,3,11 maize production.

Rapid urbanization occupies more cultivable land

Low-productivity persists because of low technology

*This includes some agricultural capital machinery. Source: Bangladesh Economic Review 200711

Primary activities continue to occupy the major share of AGDP

AGDP largely largely consists of low valuevalue-add items. The following factors impede diversification towards high value-added crops: shortage of cold storage facilities, lack of standardization, insufficient processing capacity and transportation 1,9,11 bottlenecks . Opportunities in Bangladesh Agriculture The agriculture sector offers ample business opportunities both in domestic and international markets.

Increasing urban middle class in the domestic market opens up more business opportunities

The urban population is approximately 29mn people of which 22% are middle class, with an average annual household income of USD 3,254. In urban areas, 45% of household income is spent on food and beverage items. A World Bank report found that Bangladesh would need an additional 6.5mn metric tons (MT) of vegetables, 0.7mn MT of spices, 1.6mn MT of fruits, 1.9mn MT of fish, 1.4mn MT of meat and eggs, and 2.6mn MT of dairy products by 2020 to meet domestic demand. Globally, rising food prices and increasing demand for Halal foods and organic foods provide 2,9,12 new opportunities for agro businesses. There is a huge gap between domestic demand and domestic supply of seeds and fertilizers.

Large scale investment opportunities exist for domestic seeds and fertilizer production

95% of all agricultural seeds are imported and only 5% come from local private sources. Large scale investments could expand on the success of the small domestic producers. As for fertilizers, there is a distinct gap of at least 1mn MT per year. The gap is currently filled by importing or purchasing from Karnaphully 57

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Fertilizer Company at BDT 31,000 per MT vis--vis the local price of BDT 7,200 per MT. Setting up fertilizer plants with a production capacity of 500,000 MT per year 12 would require an investment of USD 450m-500m. Cold-storage facilities are an urgent necessity for greater diversification into high-value adding products Lack of cold storage or a functioning cold chain provides opportunities for a countrywide chain of such facilities. This will help export-oriented high value added agriculture businesses to grow. According to Xian Zhu, World Bank Country Director in Bangladesh, high-value agricultural products tend to be highly perishable, and there are many risks associated with marketing these commodities. Appropriate policies and investments in key infrastructure are needed to make it viable for farmers to switch to these commodities and increase production. For example, every year potato farmers risk large quantities of potatoes going to waste due to inadequate storage facilities. In 2007, there was a bumper harvest of potatoes, most of which farmers sold to 3,5,9 intermediaries at a 25% discount due to insufficient cold storage facilities. Domestic production of milk cannot meet domestic demand. The supply chain for milk is highly fragmented. More ventures like BRAC Dairy, Pran Milk can help in filling up the gap between the demand and supply of milk. Dairying is profitable in certain parts of the country, where feed is more readily obtainable and where there is a milk-marketing infrastructure. Importing better breeds of cattle 1 would improve yield. Rapidly increasing increasing consumption and demand for pulses cannot be met by the current domestic supply. Import substitution of pulses has high potential Canada, Australia, and France are the key exporters of the domestic pulse consumption in Bangladesh. The low productivity in pulses is due to low investment in technology and diversion of resources to rice and wheat. Businesses can implement large scale production of pulses and use higher end technology to 1 compete with Canadian, Australian, and French exporters in the domestic market. Exporting organic food could be a profitable option for the Bangladesh agriculture sector. The global market for organic food and drink reached USD 23bn in 2002. Increasing demand in North America helped fuel the 10.1% increase, as North America overtook Europe as the largest market for organic food and drink. Continued growth is predicted as organic foods customers are less price-sensitive and remain loyal if offered quality products. Organic certification and labeling are needed to tap the 4 market effectively. Growing demand for Halal food globally presents opportunities for exports exports. The global market for Halal food is estimated at USD150bn-USD 500bn. The estimate for the industry growth rate ranges between 10-20%. Given such demand, the largest retailers in Europe such as Tesco are gradually increasing their stocks of Halal foods. Halal meat processing presents a lucrative business opportunity. The fragmented meat processing activities in the country can be organized and scaled 58

Milk production does not meet domestic demand

Global organic market niche is on the rise

Demand for Halal food is experiencing sizable growth

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

Revival of jute is timely due to favorable global market trends for jute-related products

Scope for investment in research and innovation

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

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References: 1. World Bank Office, Dhaka (2008). Bangladesh Strategy for Sustained Growth. Bangladesh Development Series Paper No. 18. Roy, S. (2008). Shubir Roy: Global Food Shortage An Opportunity. Business Standard published on March 05, 2008. World Bank. Bangladesh: Priorities for Agriculture and Rural Development. Bodalia, J. (2007). Organic Food Industry Guide. Business & IP Center, British Library. World Bank. (2008). Need to Increase Support for High-value Agriculture and Agribusiness in Bangladesh. Merrett, N. (2007). Malaysia plays host to Global Halal Forum. Published by www.meatprocess.com on May 8, 2007. Khan, S. (2008). Can lost glory of jute be revived?. Published in Financial Express on March 6, 2008. Nath, D. K. (2008). Investment in Agriculture to Attain Sustainability. Published in The Independent on March 26, 2008. Available at http://www.theindependent-bd.com/details.php?nid=77102 --> Zhu, X & Sur, M. (2008). High-value agriculture and agri-business in Bangladesh. Published in The Daily Star on March 26, 2008. Available at http://www.thedailystar.net/story.php?nid=23791 -->

2.

3. 4.

5.

6.

7.

8.

9.

10. World Bank. Bangladesh Jute Industry: time to rise to the occasion. 11. Government of Bangladesh. (2008). Bangladesh Economic Review 2007. Ministry of Agriculture of the Government of Bangladesh website at www.moa.gov.bd. 12. Agri Food Trade Services, Canada. (2005). Agri Food-Past, Present, & Future Report Bangladesh. Available at http://atnriae.agr.ca/asia/4057_e.htm.

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Textiles

Textiles

Asian Tiger Capital Partners

Bangladeshs USD 23bn Textile and Clothing Industry is the countrys 1 largest export earner. In 2007, Ready-made Garments (RMG) exports 2 stood at USD 9.35bn making up 75.4% of total exports. The global market stands at USD 340bn for textile and apparel. The bulk of RMG is exported 3 to the EU and US. Investment opportunities lie in diversifying, including high-end items and exporting to largely untapped markets around the world. Despite rising yarn prices, political uncertainty and a sluggish economy, the two arms of the export-oriented RMG Industry - Woven and Knit - have grown at a combined rate of 9.2% over the past year. The knit Industry has lead growth (14.3%), helped by 90% of yarn requirements for the Knit sector being sourced locally. Due to capital constraints, only 35% of the yarn 4 requirements in the Woven sector are sourced locally. Investment in the Woven Backward Linkage Industry could provide significant opportunity for returns in the local market. High interest rates and a new VAT system have seen investment in the 5 Primary Textile Sector (PTS) decline by almost 43% in 2007 . Private equity investment could allow this sector to grow substantially. The current lowquality PTS provides investment opportunities for higher quality textiles for RMG clothing as well as for the local market. Investment in branded and high-end RMG accessories can move RMG up the value chain. Currently, Paxar does this in Dhaka EPZ. Linking up with established high-end US and European accessory companies would provide the platform for doing so. Bangladeshi garment workers are increasingly being sought after by other countries, e.g. over 100 skilled garment workers have already left for 6 Romania in February 2008 and a further 1,000 will get jobs there . There are investment opportunities to set up textile institutes to train more textile workers for manpower exports.

Junaid Khan junaid.khan@at-capital.com Masum A Rahman masum.rahman@at-capital.com

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Many opportunities to further expand the Textile Sector

The USD 23bn Textiles and RMG sector has the potential to grow into a USD 50bn sector. In terms of highlights, the industry is characterized by a high concentration of low value-added products; a heavy dependence on imported intermediate inputs 7 and has a high regional concentration of exports (mainly USA and EU). The RMG industry relates to the forward linkage of Bangladeshs textile sector (e.g. Woven wear and Knitwear) and has a largely export-oriented focus. The Primary Textile Sector (PTS) relates to the backward linkage of the textile sector (e.g. spinning, weaving, dyeing and finishing).

Current trends in the Textile and Clothing Sector and Possible Recommendations

The Knitwear sector is particularly promising with 14.3% annual growth and has surpassed the Woven sector as the chief RMG export, with an average of 15 new 8 knit factories coming into operation every month in Bangladesh.
F igure 1: Comparative exports of woven and knitwear garments 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

Knitwear Export

Woven Export

USD mn

*For the first four months Source: The Daily Star4

Growth of spinning mills. On average, there has been double-digit growth in the number of new spinning mills over the past few years.

F i gure 2: Number of new s pinning mills 35 30 25

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

Fiscal Year

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08*

Number

20 15 10 5 0 2005 2006 Year 2007

Source: BTMA19

The spinning mills produce yarn, polyester and blended fibers for the RMG Sector and provide backward linkage support. The locally produced yarn provided by the spinning mills to the knitwear industry reduces lead time, ensuring that the sector remains competitive. As a result, local spinning mills cater to about 90% of the yarn 9 requirements for the knit sector, but only 35% of that of the woven sector. 62

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Decline in investment in PTS. Investment in PTS declined by 42.8% in 2007 mainly due to high interest rates. Entrepreneurs were not interested in making new investments due to higher bank interest rates of 15-16%. Also, in the 2007-08 Fiscal Budget, 10% duty and 15% VAT on the import of raw materials (polyester staple fibre, viscose staple fibre, acrylic staple fibre and pet-chips) were imposed which was previously tax-free. Business confidence had eroded due to political 5 uncertainty and the governments aggressive anti-corruption drive.

Fi gure 3: Investment in PTS

18,000 16,000 14,000 12,000

BDT mn

10,000 8,000 6,000 4,000 2,000 0 2005 2006

Year

2007

Source: The Daily Star5

Rising Yarn Prices. Since 2007, the price of yarn has risen considerably, mainly due to global cotton price increases. Yarn is the main raw material for knitwear manufacturing that makes up around 60% of export value, while local spinners 10 constitute 75-80% of the demand. RMG manufacturers are concerned that they may lose international competitiveness due to the persistent price rises of yarn domestically. However, yarn producers of the PTS say they have no choice, citing the rise on the cost of raw materials. Cotton, the main raw material for yarn, has registered a 30-35% hike in the international market over the last two to three months and Bangladesh is struggling to import the yarn from China and India due to 11 the price rise. Despite yarn being 25 cents cheaper in India, manufacturers hardly import yarn through Benapole land port due to challenging problems in customs, bond licenses 11 and transportation . Relaxing bureaucratic procedures to allow efficient importation from India would facilitate import. This measure will also put pressure on local yarn manufacturers to increase their efficiency. Training Programs. The government has set up special training sessions on workers rights for garment factory managers in an attempt to counter the labor unrest that has threatened the success of the RMG. Three sessions have already been held with groups of around 30 managers in each. The government aims to involve two-to-three key middle managers from each of the country's 4000 12 factories. Mistreatment of the workers and inappropriate handling of issues by the mid-level managers has been one of the main reasons behind recent labor unrest.
Specific Opportunities for Investment in Textiles

The Textile Sector provides ample opportunities for investment in a wide variety of fields. The specific investment opportunities are:

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Primary Textiles Sector

Investment in the PTS. PTS Investment should be made in spinning mills for the woven sector to reduce dependence on imported yarn and reduce the 65% yarn requirement that has to be imported. There would be three main advantages. Firstly, it would reduce lead time, thus increasing efficiency and competitive advantage. Secondly, foreign currency would be saved because only the raw material (cotton) would have to be imported. Thirdly, there would be more local value-addition thus enabling preferential access to Europe and America as well as creating employment. Chinese investors have shown interest to produce fabrics for 13 the woven sector so Bangladesh could benefit from Chinese FDI. The 356 medium-to-large weaving mills produce only about 50% of the total 9 requirement with the remainder imported . There is a lack of modern technology, new machinery and modern production processes in the weaving mills. As a result, the quality of fabric produced by the weaving mills falls far short of the requirements of the export-oriented RMG sector. This fabric is used to cater to the local market. There are significant opportunities for investment introducing new technology to take the advantage of the available demand. Local dyeing-printing-finishing mills meet around 25% fabric demand of the RMG units. Due to lack of quality fabrics from the weaving mills, most of the dyeing-finishing units have to import the fabric. Another constraining factor is the rising price of chemicals that are used in dyeing and washing plants. For example, there was a 30-50 % rise in the last year. Investment should be made to set-up dyeing-Finishing units with the latest 14 technology to meet the fabric demand for export as well as local markets.

Garment Accessories

Investment in the Garment Accessory Industry. Currently 100 accessory manufacturing firms meet 80% demand for accessories used in exportable garments and knit items. However, local industries have failed to manufacture costly accessories like ornamental stones, belt and clips for use in brand-exportable 15 garment items, which are now being imported mainly from Hong Kong . Further research should be done to explore investment opportunities in high-end garment accessory industry which is virtually untouched in Bangladesh. An interesting feature of the garment accessory industry is that such plant investment costs are low. For example, an entrepreneur can set up a full-fledged accessories industry in Bangladesh at a cost of BDT 40 crore, whereas more than BDT 1bn is 15 required for setting up a small textile mill or woven factory. Exporting BangladeshiBangladeshi-branded apparel. apparel. Bangladeshs RMG industry can benefit from substantial investment to move up the value-chain and export branded clothing. Currently, the vast majority of exports are t-shirts, shirts, and sweaters. Bangladeshi manufacturers focus their production on clothing for big global brands. The industry has earned the reputation of being known simply as a cut and paste manufacturer for foreign buyers and the international textile community have this perception that Bangladeshi garment manufacturers lack ambition.

Bangladeshi-branded Apparel

Bangladesh has the potential to export and market branded apparel since there are already home-grown brands. Cats Eye, Monsoon Rain, Westecs, and Ecstasy are some popular local brands, appealing to both upper-income and middle-income Bangladeshis. Cats Eye Group has started developing sub-brands in order to appeal to different segments of the local market. For example, its Monsoon Rain label is aimed at executives, while its UNLIMITED brand is targeted at young and 64

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modern buyers. Both Yellow and Cats Eye are now considering exporting their designs and brands and setting up stores abroad. Fit Elegance is already exporting 16 its own range of suits, blazers and trousers to the UK. Investment is needed to support the cost of developing and marketing Bangladeshi clothing brands in European and US Markets. State owned assets. At present, there are 21 textile companies under the BTMC in the nationalized sector. They operate 24 spinning mills with an installed capacity of 17 490,892 spindles and 1,036 looms. These mills provide a lucrative private equity investment opportunity through privatization. Need for machinery. With almost 9,500 textile and RMG units in Bangladesh, there is a large and growing potential for investing into textile light engineering support, maintenance, repairs and spares for all the different machines and equipment used. Investment in textile and fashion design institutes. institutes Currently, the 46 public vocational textile institutes and the 4 fashion design institutes provide training courses such as fashion merchandising and production technology. These institutes add value to merchandise exports from the industry through training professionals at all levels, but they are inadequate to meet the demands of the burgeoning textile sector. Every week about 15 new knit factories are set up alone. There are investment opportunities for establishing new textile institutes to train 20 engineers and fashion designers to create locally designed fashion accessories . Initiatives should also be undertaken to attract foreign young designers to forge links with the institutes to widen experiences. Investment in handhand-knitted toy market. There is a growing demand for hand-knitted children's clothes, blankets and birthday party decorations in the European and US markets. For example, Hathay Bunano is a Bangladeshi hand-knit manufacturer that exports certified Fair Trade products with the majority of the goods shipped to European retailers such as Yellow label kids, Larkmade and UK-based Urchin. The products are expensive but demand is quite high because customers outside Bangladesh are prepared to pay for well-made, ethically produced toys - a box of 18 five knitted donuts sells at USD 34.99 (BDT 2,450) on the Yellow Label website . The hand-knitting industry is attractive in many ways. There is no need for heavy textile machinery, mns of rural women know how to knit and thus require little training, and most importantly, hand-knitting can be done at home. Investment in this segment would also open the doors of employment to mns of rural Bangladeshi women who do not have the choice of working in a garment factory because of family and farming duties. Conclusion Despite the textile sector already being Bangladeshs key export industry, there remains many investment opportunities. While the RMG industry is fairly developed, an attractive strategy is in moving up the value chain with locally branded products, high-end accessories and franchises with foreign brands. The PTS remains undeveloped in many ways but has strong domestic demand and private equity capital could be critical in developing this sector.

Privatization of state owned mills

Investment in Light Engineering of Textiles

Textile and fashion design institutes

Hand-knitted toy market

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References 1. Interview with Mahmudur Rahman, Executive Chairman, Bangladesh Board of Investment (circa 2005) and Malhotra, T. C. (2006). Bangladesh: A Growing Textile Economy. Official website of BKMEA at http://www.bkmea.com/facts_figures.php The Indo-Italian Chamber of Commerce and Industry. (2007). Overview of the Textile Industry in India. Mirdha, R. U. (2008). Knitwear emerges as No 1 export item. Published in The Daily Star on 6 January 2008. Mirdha, R. U. (2008). Political turmoil, import duty takes toll on primary textiles. Published in The Daily Star on 20 January 2008, The Daily Star. (2008). Romania to recruit more Bangladeshi RMG workers. Published in The Daily Star on 18 February 2008. Sampath, P, (2007). Intellectual Property and Innovation in Least Developed Countries: Pharmaceuticals, Agro-Processing, and Textiles and RMG in Bangladesh. UNCTAD. Mirdha, R. U, (2008). Strong knitwear exports to exceed Govt targets. Published in The Daily Star on 9 March 2008. Sarker, A. H, (2007), Backward Linkage in Promoting Textile & ClothingChallenges from a Practitioners View, BTMA Annual Report 2007, Dhaka, Bangladesh, page 24. The Daily Star. (2008). 22pc rise in yarn price to hit knitwear exports. Published in The Daily Star on 14 February 2008. The Daily Star. (2008). BTMA defends yarn price hike; Terms allegation of price manipulation as baseless. The Daily Star on 20 February 2008. Khan, J. U. (2008). Govt moves to train RMG managers to counter labour unrest. Published in The Daily Star on 06 February 2008. The Daily Star. (2008). China keen to invest in textile sector. Published in The Daily Star on 13 March 2008. Sarker, A. H. (2007), Backward Linkage in Promoting Textile & ClothingChallenges from a Practitioners View, BTMA Annual Report 2007, Dhaka, Bangladesh, page 26. . Mirdha, R. U. (2007). Local garment accessory industry meets 80pc demand. Published in The Daily Star, 13 December 2007, Mirdha, R. U. (2007). Local clothes are cool. Published in The Daily Star, on 25 March 2008, Khan, K, (2008). Business can be child's play. Published in The Daily Star on 21 March 2008. . BTMA. (2007). BTMA Annual Report 2007, BTMA: Dhaka, Bangladesh. Primary sources: interviews with BTMC officials.

2. 3.

4.

5.

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14.

15.

16.

17.

18. 19.

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Outsourcing

AT Capital Research Outsourcing

The global offshoring market is estimated to be USD 300bn of which USD 110bn will be offshored by 2010. There are significant opportunities for Bangladesh to take increase its presence in this sector. Bangladesh, with a favourable demographic in terms of a large, young, population (Age: 15-64, 95mn) compared to the ageing population in the developed world can play a role in the global outsourcing industry. Bangladesh has nearly 1mn students enrolled in tertiary level education.

Asian Tiger Capital Partners

It has been forecasted that the wage advantage that India is enjoying versus many Western labour markets will diminish by 2020. The Government has put increasing emphasis on outsourcing with the introduction of licensing for call-centers. BTRC is giving priority to create an enabling environment in which call-centers can grow. Connections and networks are crucial for the industry to flourish. Leveraging the NRB base could also help to win clients for local companies. Government initiatives like industrial parks will help the sector. Venture capital investment can also play a crucial role. The opportunity for investment in the education sector will be significant as there is a clear need for skilled workers. Demand for such professionals will be much higher than current supply. IT and outsourcing is emerging in Bangladesh. Last year the country earned USD 28.6mn from the sector. There are over 100 companies in this sector in Bangladesh. We see significant growth opportunities ahead.

Ashek Ishtiak Haq ashek.haq@at-capital.com

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Growing attention on Bangladesh Increasing global attention. Recently Crains New York Business ran a front page article titled Outsourcing moves to Bangladesh. This enthusiasm about the Bangladeshi BPO industry is not isolated. Industrial analysts from Goldman Sachs to Cisco Systems are also predicting that Bangladesh has the potential to follow in the steps of India. As the latter loses its labour cost advantage, opportunity for Bangladesh is becoming increasingly clear. With investments in universities and vocational training colleges there are many commercial prospects in the BPO and 4 KPO space. The 2005 NASSCOMNASSCOM-McKinsey Report suggests that the total potential market for global offshoring is approximately USD 300bn 300bn, bn, of which USD 110bn 110bn will be offshored by 2010. India is forecast to generate export revenues of approximately USD 60bn by growing at 25% year-on-year till 2010. China, Vietnam and Sri Lanka 3 are emerging as preferred offshoring destinations.
Fi gure 1: Global spending on IT and BPO outsourcing 260 240 220

A potential USD 300 bn global industry

BPO

IT

USD bn

200 180 160 140 2006 2007 2008

Year

Source: Economist1

Global wealth creation

The phenomenon phenomenon of global wealth creation. Diana Farrell of the McKinsey Global Institute termed Outsourcing as the Phenomenon of global wealth creation. Bruce Herald of IBM estimated that globally companies between them spend USD 19tr each year on sales and general and administrative expenses; only USD 1.4tr of this has been outsourced to other firms. McKinsey in a survey found that software engineering, banking and IT services between them employ more than 20mn workers worldwide. In 2004, 16% of IT service work, 6% of software work and only 1% banking work are done remotely. McKinsey has also forecast that as much as half of the work could be moved abroad. A java programmer in India only costs USD 5,000 whereas the US programmer costs USD 60,000. US trained and licensed radiologists in India can 1,2 read X-rays, MRIs and CT scans for less than half their US counterparts cost. India is slowly losing its IT outsourcing and BPO advantage. advantage Wages are rising in India. For example, 10,000 keystrokes of data entry may take around USD 10 in India whereas the same work can be done at half the rate in 8 Bangladesh. Some researchers believe that the wage difference enjoyed by India will be completely gone by 2020. Arman Rousta of Blue-liner Marketing, a New York online-marketing consultant comments, India is almost oversaturated, but 9 Bangladesh is up-and-coming. Additionally the Indian Budget 2008-2009 has removed some of the incentives that the country used to provide for the export units under the Software Technology Parks (STP) and also imposed a minimum alternate 5 tax since April 1, 2007. 68

India is losing its cost advantage

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The market is getting bigger The global outsourcing focus is shifting towards Philippines, China, Vietnam, Sri Lanka, Israel, Pakistan and Bangladesh. Bangladesh Nikhil Rajpal, VP, global services practice, Everest Group said India cannot possibly handle all the work it gets. And with rising costs, smaller players can look 9 to Bangladesh as an alternative centre. The total size of the ITES sector in Bangladesh which includes both export and domestic BPO is only USD 150mn. 9 Industry experts forecast it to be double or triple in the next three to five years . Global player Cisco also believes that Bangladesh could get 10% of the estimated USD 142bn IT and back-office outsourcing market. According to BASIS, software export has seen significant growth in recent years. BD firms major exporting destination is the North American market but recent new ventures are with European and East Asian (mainly Japan) markets. At least 30 companies have set up joint venture or ODCs (Offshore Development Centre) with 100% foreign 4 investment.

Figure 2: Value of Bangladesh's exports of software and ITES 30 25 20

USD mn

15 10 5 0 2002-03 2003-04 2004-05 Fiscal Year 2005-06 2006-07

Source: Bangladesh Bank

Outsourced call centres

A new hope. hope. According to NASSCOM, in 2007 companies worldwide spent USD 280bn on outsourced call-centre services. There has been a recent push for Bangladesh to enter this market; BTRC has started to issue call-center licenses at a 5 very low price. An enabling environment environment The recent recent boom in private universities (from a handful few in 1993 to about 54 at the end of 2007) has expanded the pool of relevant human capital in Business Administration, English, Pharmacy, Environment, Law and Computer Engineering, at both undergraduate and graduate levels. Each year educational demand in these 4 fields is increasing creating a need for more quality educational institutions.
Figure 3: The graduate workforce of Bangladesh Upcoming Computer science and software engineers IT-related field, IT-related engineers
Source: BASIS
4

Increasing knowledge base

Fresh Addition 2,500 5,500

15,000 40,000

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Figure 4: Potential workforce in Bangladesh for BPO and ITES Skills type Graphics (2D/3D), animation, website design New media, DTP, website publishing CAD (Architecture, mechanical, construction)
Source: BASIS
4

Size of the workforce 12,000 or more 8,000 or more 5,000 or more

Scope of joint ventures

The growth of informationinformation-technology (IT) related universities, institutions, and training centers has led to the emergence of about 400 IT and Information Technology Enabled Services (ITES). There are more than 100 companies exporting to around 30 countries. Three major categories are: custom software development and maintenance, multimedia software development, and website development. There is significant opportunity here to develop joint ventures with credible global players. There is cost saving incentive for the global player and the 4 benefit of knowledge transfer for the local firm. Bangladesh already has a large number of NRBs working in IT related professions around the world. They can be encouraged to set up IT enterprises in Bangladesh through various incentives e.g. tax benefits, access to funds etc. Their enthusiasm to come back has been reflected in the recent NRB conference in Dhaka. Industry promotion offices can be set up in key cities around the world. The involvement of NRBs with expertise and experience from Silicon Valley, for example, will enhance the credence of Bangladeshs ability to provide quality services. It will take credibility, capability and cross-cultural understanding to achieve operational efficiencies. Rajendra Bhandari of IIM, Bangalore studied five European firms who have outsourced to Sri Lanka; they chose that country because a well-placed Sri Lankan 1 worked for the European firms. The Government continues to set up EPZs EPZs to facilitate different industries. Similar industrial parks for the IT sectors with appropriate fiscal incentives will create an advantage for entrepreneurs. . Government, as well as private venture funds, may provide financing. Such a strategy will remove the problem of low access to finance for such unconventional businesses from the traditional banks. The government of India did the same to encourage BPO in India. Growing importance towards the sector will open up infrastructure investment opportunity for the investors.

Leveraging NRBs

The governments role

Changing perception Capable human capital should should be developed by setting up training centers for English, IT and other necessary skills. skills A partnership between the industry and the academia should be formed to increase availability of graduates with the right kind of skills. Educational institute providing custom made programs consisting of threeyear degree courses supplemented by one-year technical certificates can be formed to meet industry demand. BPO has a wealth of business opportunities for local businesses such as selling of various products and services for various companies, provision of technical support, help-desk service online and general information, follow-up sales support and service, directory assistance, database development, market research, handling of credit and billing problems, telemarketing, credit card sales, human resources functions, loan processing, account management, medical claims processing, hotel and airlines reservations, that can be done in a cost effective manner in 70

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Bangladesh. Businesses need to be informed of the opportunities they may be able to leverage from their existing operations. Global opportunities opportunities
Case Study: GraphicPeoples Danish Alliance10 GraphicPeople started its operation in Bangladesh in 2004 as a subsidiary of Danish communication house PeopleGroup. The firm offers a full range of DTP solutions. After two years of operation, its success is reflected in its positive bottom-line growth. Between, 20052006 revenue has doubled, while the number of employees has risen from 20 in 2005 to 34 in 2007. Its client list includes international brands such as Dell and Intersport. The firm enabled its clients to cut as much as 80% expenses without sacrificing quality. It has been established in collaboration with Danida, which has supported the project through its B2B program.

Setting up universities and training colleges to cater to the significant demand. Experts forecast by 2015, there will be a need for 850,000 more IT professionals in 11 Europe. Most of these jobs will be outsourced. Soaring demand for IT graduates will make such universities and training colleges highly desired. International accredited training centers will also be in high demand. Bangladesh according to an industry analysis produces 200,000 graduates every year but, only 10-20% of these 9 are BPO ready. The country has yet to have the capability, credibility and cultural understanding about the industry as India but it can offer significant cost advantage and also diverse expertise. With focused training the knowledge gap can be closed. Joint ventures ventures can provide knowledge transfer. transfer. These can be developed with global players in outsourcing. Proximity to India should be leveraged. Such relationships will diversify risks in the JV partners cost base and provide much needed credibility for the local partner. Call centers opportunities The BTRC is facilitating the development of call centres with the issue of new licenses. Centres developed in tandem with English speaking classes, may provide an opportunity from the overspill from Indias resource constrained market. Although the sector has yet to flourish Nikhil Rajpal foresees in 9 the next 2-5 years, nearly 10,000 to 20,000 call centre jobs will be generated. Knowledge process outsourcing outsourcing (KPO) work can be a developed Recent growth in private universities is providing us with graduates who could be utilized for intellectual property or patent research, content development, R&D in pharmaceuticals and biotechnology, market research, equity research, data research, database creation, analytical services, financial modeling, animation and simulation, medical content and services, remote education, publishing and legal support. With additional focused vocational training coupled with end user specific development, skills could be developed in all these areas. Conclusion With a growing global outsourcing and offshoring market, and diminishing cost advantages of the traditional providers, there are substantial opportunities for Bangladesh. With low cost human resources and the development of quality education and technological infrastructure, we believe Bangladesh can capture significant market share if the necessary focused investment strategy is in place. 71

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References 1. 2. The Economist (2004). Survey on Outsourcing. Corbitt, M. F. (2004). The Outsourcing Revolution: Why it Makes Sense and How to Do it Right. Chicago: Dearborn Trade Books. NASSCOM-McKinsey Report (2005). Extending Indias Leadership of the Global IT and BPO Industries. BASIS, Content & Publication Department. Financial Express (2008). Call centre licences from next month. Article th published in the Financial Express on 20 March, 2008. The World Bank. (2008). Doing Business in 2008. Available at http://www.doingbusiness.org/documents/FullReport/2008/DB08_Full_Rep ort.pdf. Walling, E. R. (2007). 50 Management Ideas. London: Quercus. CiteHR Human Resource Management Community (2008). Available at http://www.citehr.com/knowledge-process-outsoucingkpo-vt4579.html. rd Accessed on 23 March, 2008. Sachdeva, S.D. (2008) Bangladesh to issue call centre license. Article th published in The Times of India on 20 February, 2008. Available at http://timesofindia.indiatimes.com/Business/India_Business/Bangladesh_to rd _issue_call_centre_licences/articleshow/2796515.cms. Accessed on 23 March, 2008.

3.

4. 5.

6.

7. 8.

9.

10. Ministry of Foreign Affairs Denmark, Embassy of Denmark, Dhaka., 2008. Danish Success with Outsourcing In Bangladesh. Available at http://www.ambdhaka.um.dk/en/menu/DevelopmentIssues/Businesstobusin ess(B2B)Programme/B2B+Case+Stories/Case+Story+no+1+GraphicPeopl th rd e/. Article published on 8 November, 2007. Accessed on 23 March. 11. Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). Making Bangladesh a Leading Manpower Exporter: Chasing a Dream of USUSD 30 bn Annual Migrant Remittances by 2015. India: Indian Institute of Management Calcutta.

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Manpower

AT Capital Research Manpower

Asian Tiger Capital Partners

The global manpower industry will amount to USD 600 bn by 2015. A recent report by DANIDA has estimated that Bangladesh could capture 5% of this USD 30bn. To gain 5% market share by 2015, Bangladesh would have to send 0.8 mn-0.9 mn people abroad annually. The industrialized world is aging and facing negative growth in population, Bangladesh with a young and energetic population has a huge opportunity to benefit. Emerging Europe as well as Central Asian economies are sending their own manpower to more prosperous economies which is creating a vacuum in their own countries. Bangladesh can fill this labour shortage. There is substantial demand for unskilled/semi skilled jobs such as masons, cleaners, fabricators, carpenter and garment operators. For skilled jobs these include doctors, computer programmer, engineer, teacher, surveyors and managerial jobs. With focused investment in training Bangladesh could capitalize on these opportunities. The current manpower recruitment agency sector remains relatively undeveloped and unregulated. There are substantial opportunities to create stand-alone recruitment agencies and Manpower Consultancy firms which provide integrated training & HR services. Vocational Training Institutes are critical in developing a more profitable manpower exports further up the value chain. Bangladesh could aim to emulate the Philippines story and develop more nurses targeting an aging demand in developed economies.

Ashek Ishtiak Haq ashek.haq@at-capital.com

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Bangladesh can grow its manpower industry from USD 8bn to USD 30bn
The Bangladesh manpower export industry is worth USD 8bn a year. year In a country with GDP USD 70bn, remittances are a significant contributor. A recent report sponsored by the Royal Danish Embassy estimated that the Global Manpower industry will be USD 600bn, and Bangladesh has an opportunity to capture 5%, or USD 30bn, of the market (it now has a 1.8% share). The manpower agencies and other supporting services revenue is estimated to be between USD 250mn to USD 400mn. By 2015 it could reach USD 1bn if Bangladesh can capitalize on the opportunity. Through focused and targeted training and investment in HR 1 consultancies we believe it could achieve this goal. A 2003 UN report suggests about 3% of people are on the move in the world. Global remittances through official channels were estimated to be USD 268bn in 2006. This is forecast to expand to USD 400bn by 2010 and cross USD 600bn by 2015. Developing countries share is forecast at 70% of the total. WTOs GATS Mode 4 agreement will grant much greater freedom of movement of temporary workers. The cumulative, temporary or permanent migration figure will cross 80100mn. With the inclusion of unrecorded flows it has been estimated that remittances exceed FDI flows to developing countries. Among the global top 20 remittance receivers, 8 are from developing countries. Countries receiving the most remittances are Mexico (over USD 25bn), India (USD 23.5bn), and China (USD 22.5bn). The main competition for Bangladesh will be from India, Nepal, Pakistan, Sri Lanka, Indonesia and the Philippines. In recent times Nepal and Vietnam have 1 emerged as new sources of labor supply.

Global mobility is increasing

F i gure 1: Top 15 remittance earners 2005

25,000

2006

20,000

USD mn

15,000

10,000

5,000

Bangladesh

Philippines

Romania

Spain

Lebanon

Serbia

France

Germany

China

Belgium

Source: Ray, Sinha & Chaudhuri (2007)

Remittances have grown three fold from 2001 to 2006

Bangladesh started to send manpower abroad in the 1976. 1976 Since then a total of 4mn workers went abroad with 300,000 added annually. Remittance earnings have grown three fold between 2001 and 2006, from USD 1.6bn to USD 4.8bn accounting for 6% of the increase in GDP, 30% of export earnings and 20% of import earnings. The top destinations are Saudi Arabia and UAE. In 2006 Bangladesh received USD 4.8bn in remittances, up 25% from the prior year. Including contributions coming 1 through informal channels it could exceed USD 8.0bn. 74

Mexico

India

Morocco

Pakistan

UK

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Figure 2: Top destination countries for Bangladeshi workers in 2006

5% 6% 10%

4%

9% 36%

UAE K.S.A Kuwait Malaysia Singapore

30%

Bahrain Others

Source: Ray, Sinha & Chaudhuri (2007)

Manpower can provide more benefits than just remittances

Manpower exports can provide provide significant national benefits. benefits. While remittances are widely seen as the key economic benefit, free of local economic downturns, one cannot underestimate the value derived from returning migrants bringing back managerial skills and technical know-how. The community abroad creates 1 significant international networks. Bangladesh has a strong presence in manpower exports exports in many countries. countries Its workers have a good reputation and are known to be loyal, disciplined, hardworking and adaptable and have a propensity to save. One of the key competitive advantages is the low average age of the workers. 95m citizens are between the 1,4 ages of 15-64, who suffer from domestic unemployment rate of 39.9%.

Bangladeshs comparative advantage as a destination for manpower

Fi gure 3: Manpower exports by profession

8% 8%

6% 43%

Labour Cleaning Driver Technical Personnel

10% 15% 10%

Agriculture Construction Labour Catering Services

Source: Ray, Sinha & Chaudhuri (2007)

A structural change where destination countries are looking for higher skills; targeted vocational training key to move up the value chain

Challenges To capture market share of the growing manpower industry, industry, Bangladesh has to invest in human capital through education and training. Most Bangladeshi migrants are young, male, unskilled, aged between 15-30 years and poorly educated. Only 10-20% are certified vocationally trained and less than 10% general college graduates are exportable. Training has become a necessity with the structural shift towards activities demanding higher skill and the emergence of automation. With the current deficiency in vocational training, training Institutions serving targeted labor pool such as mason, cleaner, fabricator, carpenter and garment operators can create more profitable manpower which can be a more lucrative export. Bangladesh can learn from the Philippines story and develop more nurses targeting western aging population demand.

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Case study: study: The Philippines Revolution. The Philippines have dominated the manpower export industry since the 1970s. The government has been treating temporary labor migration as a foreign policy priority in both bilateral and regional trade negotiations for the past three decades. They have established LINKAPIL to enable migrants to support development projects at home, in infrastructure, education, and healthcare. Through the organization the migrants have invested USD 1bn in the economy. LINKAPIL floated development bonds targeting migrant workers, special pension funds which include resettlement and medical services for returning migrant workers. Philippines remittance earnings for 2006 were USD 14.9bn more than triple Bangladeshs official remittances. This success story has become possible due to several factors. The Philippines have one of the most enviable education systems in Asia. They have over 800 higher education institutes. The Philippines have 190 universities and colleges training 9,000 nurses each year. They produce 50,000 teachers per year. English is the primary medium of instruction. For years The Philippines teachers have successfully met and cleared US teacher licensure examination. They have exported 9,000 household workers in 2006. 25% of the worlds seafarers are from Philippines. The governments recent initiatives regarding the industry are upgrading worker skills, orientation courses on country specific culture and language, ensuring health and safety at the job-site, obliging the employers to pay for travel fees, increasing the minimum wage from USD 200 to USD 400 and interviewing the employer.1

Reforming the recruitment agency sector

The identification, screening and regulation of recruitment agencies in Bangladesh and at destination locations is a priority. priority The sector suffers from a poor local and international image with a reputation of charging excessive fees, dishonesty and inappropriate contract negotiation. The Bangladesh Association of International Recruiting Agencies (BAIRA), an association of 700 member agencies, should ensure better monitoring. A computer databank can play a vital role here, compelling the agent to recruit from listed workers. Tying the agents commission to salary negotiated will align their interest with that of the employees. Another essential objective is building trust and through a superior brand image. image Strategic ties and relationships with countries where migrants go to work should be developed. Trade attaches have to proactively promote Bangladesh. A combined marketing effort both from private and public sector showcasing the substantial manpower resources needs to be formulated and executed. The emergence of newer competition: competition New countries such as Turkey, Poland, Romania, Bulgaria, Sub-Saharan Africa, Morocco, Somalia, Tunisia, Mexico, Jamaica, Colombia, Vietnam, Fiji, and Nepal with the older competitors such as India, China, and Philippines are making the market more competitive. Bangladesh needs to position itself effectively increasing its skills base and retaining its traditional comparative advantages over other suppliers. Increasing channeling of remittances through legal channels can be facilitated through reduction in transaction costs using financial instruments. People refrain from the formal channels because of better exchange rates, time savings, low transaction costs and ease of remittance. Restructuring the existing system and developing new products can attract forex e.g. exchange rate incentives for migrants, efficient and customized delivery system of remittances. Changed economic policies and incentives may encourage migrants to send more remittances home. Also recent initiatives like Western Union joining the postal 1 service to deliver money will facilitate money transmitted through legal channels. 76

Policy level relationship building

The emerging competition

Effective and economic financial channels required for legitimate remittance transfer

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As the workers from Emerging European economies are leaving for better opportunities in Western Europe, Bangladesh has the opportunity to serve this market. Recently Romania has been seeking Bangladeshi workers for its garments industry. Similar opportunities can be found in Poland, Estonia, Hungary and Bosnia. For example Poland has seen an outflow of carpenters, plumbers and electricians to the UK and is suffering from shortage in its own market. The current current surge in labor demand has been prompted by faster and cheaper transportation, the expansion of global labor markets, a shortage of highly educated workers and an aging workforce in industrialized countries. Until now, Bangladesh has been able to access 20% of the global manpower market. The most attractive countries in terms of unemployment rate, low birth rate, and income equality are the EU, Japan, USA and South Asian countries. For example, the US will need 21mn more workers by 2014. Seven of the ten occupations with the fastest growth are in low-wage services that require minimal training (e.g. sales rep, janitors, waiter, nursing, orderlies). It has been forecast that by 2015 there will be demand for 850,000 IT or E-skill workers in Europe. OECD will require 25mn workers by 2014 and 50mn by 2020. Focused targeting of these 1 markets provides significant investment opportunities. Aligning training need with the opportunities can present the local entrepreneurs with prospects prospects in vocational training institute. The most sought after unskilled worker jobs are for mason, cleaner, fabricator, carpenter and garment operators. For skilled workers this includes doctors, computer programmer, engineer, teacher, surveyors and managerial jobs. Entrepreneurs providing these vocational skills will have significant investment opportunities. The financial financial industry can target manpower employees with innovative products, deposit schemes or bonds. Philippine government has used the government body LINKAPIL program to float development bonds targeting migrant workers, and also special pension fund. Both government and private sector can take similar initiatives for the migrant workers. High quality oneone-stop training and HR HR consultancy providers for prospective migrants will certainly help the industry. A fully integrated high quality service focusing on the migrants vocational and cultural training, recruitment and career consultancy could provide a more comprehensive service to workers and users. Joint venture venture alliances alliances with a reputed international placement agency for skilled workers can open up a profitable market for higher value human resources. For example engineers, software programmers, scientists, managers, teachers, accountants are in higher demand all over the world. International network can 1 provide more options for their placements. Conclusion: Conclusion: As demand increases for manpower globally, Bangladesh could take 5% or USD 30bn of the global market. With a large, young and dynamic population suffering from high unemployment domestically, foreign employment is a significant opportunity. Targeted skills training, an efficient and transparent employment agency industry and alliances with international agencies, could propel Bangladesh further up the value chain. 77

New EU member nation migration provide an opportunity for Bangladesh to fill the gap

Developed nation demographic is and continues to age; new markets are opening up

Targeted high quality vocational training institutes could be very lucrative

Banks could position themselves for growing transaction fees with tailored products

One stop shop for manpower exports

Leveraging international networks and experience

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References 1. Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). Making Bangladesh a Leading Manpower Exporter: Chasing a Dream of USUSD 30 bn Annual Migrant Remittances by 2015. India: Indian Institute of Management Calcutta. The Daily Star. (2008). Romania to recruit more Bangladeshi RMG th workers. Article published in the Daily Star on 28 February, 2008. Available at http://www.thedailystar.net/story.php?nid=23894. Accessed th on 25 March, 2008. CIA Factbook. Available at https://www.cia.gov/library/publications/theth world-factbook/geos/bg.html. Accessed on 25 March, 2008. Mahmud, M. (2004). Youth lost to Joblessness. Article published in The th Daily Star on 13 October, 2004. Available at http://www.thedailystar.net/2004/10/13/d4101301011.htm. Accessed on h 25t March, 2008.

2.

3.

4.

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Pharmaceuticals

Pharmaceuticals

With a USD 600mn industry and an average annual growth rate of 12%, the Bangladeshi pharmaceutical industry is the biggest (in volume) amongst all the LDCs. Primarily a generics industry producing about 8,000 different brands which meet 97% of the domestic demand. Local companies enjoy 86% market share. Of the 245 registered pharmaceuticals, the top ten players account for 65% market share.

Asian Tiger Capital Partners

According to the WTO TRIPS agreement, LDCs are exempted from Patent Protection until 2016 allowing legal reverse engineering and sale of patented products. This provides a unique opportunity for Bangladesh over India and China, who are under the patent regime. Bangladesh has made significant progress in the export market. Between 2003 and 2006 pharmaceutical exports increased to about 61 countries from 51 and quadrupled in value from USD 7.9mn to USD 36.5mn. Since many companies have acquired international certifications like USFDA, UKMHRA and TGA, Bangladesh can penetrate into regulated and unregulated markets. With the demise of reverse-engineering in India and China, Bangladesh is in a position to emerge as one of the regional R&D centres for Pharmaceutical Research. Bangladesh provides a strong platform for off-shoring/outsourcing generic bulk and formulation drugs due to a cheap labor force and established infrastructure. Through the establishment of modern technical facilities, the industry can emerge as a regional hub for pre-clinical testing and clinical trials. Establishment of adequate reverse engineering and API manufacturing facilities provide a substantial market for import substitution as currently 80% of the APIs are imported. Local manufacture of vaccines and injectables will enable Bangladesh to become self sufficient in the production of formulations. The Patent exemption through TRIPS and the government endorsement as a thrust sector have presented a perfect platform for the industry to launch itself into the global arena.

Sanwar Ahmed sanwar.ahmed@at-capital.com

Dewan Ashrakat Hossain ashrakat.hossain@at-capital.com

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The Bangladesh Pharmaceutical Industry
The global pharmaceutical industry is expected to grow to USD 1.3t 1.3tn by 2020. The Bangladeshi market, though currently small from a global perspective, is growing rapidly at an average rate of 12%. Bangladesh has the largest pharmaceutical industry among the Least Developed Countries (LDC). The TRIPS agreement has given it an advantage as an LDC to legally reverse-engineer patented products and sell in the local market. India has recently been subjected to patent protection in 2005. This places Bangladesh at an advantage in the generics market until 2016. Given this position, investment in various areas such as adequate reverse engineering facilities and API (Active Pharmaceutical Ingredients) plants will help 1,3 the industry compete on a globally. Nepal, Pakistan and Sri Lanka have the capability to make finished products (formulations) from imported ingredients (bulk drugs). India has the capability to produce both bulk drugs and formulations in the South Asian region. Currently, the Indian pharmaceutical industry is one of the largest generic pharmaceutical industries in the world. However, with the new patent regime MNC dominance is 13 anticipated with the need for more R&D.

Import of bulk drugs in neighboring countries

Pakistan meets 90% of its bulk drug requirements through imports from China, Japan, the UK, Germany and India. Bangladesh imports 80% of its bulk drugs mainly from India, China and Europe. Sri Lanka meets 98% of its drug requirements through imports mainly from India. Although Bangladesh, Nepal, Pakistan and Sri Lanka can produce formulations, only Bangladesh and Pakistan have self13 sufficiency in the formulation segment.

Brief comparison with India

Figure 1: Comparison of the Indian and Bangladeshi Market size Growth rate API industry Export share (USD mn) (%) (USD mn) (%) Bangladesh India
Source: DDA & USITC
9,10

600 6,000

11.6 10.0

28 210

0.35 4.10

white-collar labor employer. The Bangladesh pharmaceutical industry is the largest white employer It is primarily a generics market, producing both patented and off-patent products. In 2007 the market was worth USD 600mn and has grown at an average rate of 12% over the last five years. The industry is dominated by local manufacturers who account for 86% market share. The top two domestic manufacturers, Square and Beximco Pharmaceuticals have a combined market share of over 27%, while the top ten domestic manufacturers constitute about 64% of the total pharmaceutical 1,4 market in Bangladesh.

Steady Growth in Market Size

Figure 2: Bangladesh pharmaceuticals market (USD mn) 2004 1st quarter 2

nd

2005 95.8 120.4 128.2 145.6 490

1

2006 123.7 136.8 157.9 91.6 510

2007 142.2 156.6 154.2 137.6 590.6

94.1 110.6 107.5 104.4 416.5

quarter

3rd quarter 4th quarter Total

Source: IMS Report,4th Quarter - 2007

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Over the last few years the Bangladeshi pharma industry has seen a significant increase in exports. At present Bangladesh exports to over 65 countries around the world, the majority of which are LDCs. Export destinations include Japan, Canada, 9 Italy, Korea, Saudi Arabia, Malaysia, the UK and the USA . In terms of finished formulations, the pharmaceutical industry in Bangladesh accounts for 97% of local demand with the balance relating primarily to the import of vaccines. Bangladesh, however, has to import a large portion of API required for finished formulations. Although 21 local pharmaceutical companies are producing 41 APIs, around 80% of the total API required by the industry comes from 4,11 imports.

Increasing Penetration of Exports

Figure 3: Export statistics (USD mn) Finished Raw Year products materials 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

No. of countries 17 32 51 62 67 61 65

Source: Primary Interview, DDA

Competitive Advantages

Patent exemption In 2002, the Doha Declaration of TRIPs was adopted. LDCs were exempted from Pharmaceutical Patent Protection until Year 2016. This means that Bangladesh can legally reverse-engineer patented products and sell them in the local market as well as export to other LDCs. The TRIPS agreement can be used to ensure access to innovation, invention and affordability of 4 pharmaceutical products and processes by developing nations. Regulatory environment The local drug ordinance established in 1982 was designed in a manner to protect the local players. One clause states that if 4 or more local companies manufacture a certain drug, no MNC can import that drug. The TRIPS agreement along with the national drug policy gives the local companies 9 in the generics market a significant advantage. Strong manufacturing base Among the LDCs Bangladesh is the only country which is almost 100% dependent on drugs produced locally. Bangladesh also has the largest market size among the LDCs giving Bangladesh a strong manufacturing base. Only 49 LDCs, including Bangladesh, are able to export their patented drugs. Other countries, including India and China will not be able to export their patented 4 drugs, as the facility will be reserved for LDCs until 2016. No license fees Due to its LDC status and the fact that Bangladesh has no patent protection for pharmaceutical products, no license fees are payable for manufacturing and for export to other LDCs. License fees would be applicable for export to any non-LDC where the patent holder has registered his patent. No such fee has to be paid, either because the patent is not filed or because it is not 4 enforced. 81

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Low logistics costs According to the World Banks Doing Business report, inland transportation and handling costs are very competitive in Bangladesh at USD 150 per standard cargo compared to USD 404 in India, USD 520 in Tanzania and USD 12 600 in Ethiopia. LowLow-cost energy Fuel and energy is highly subsidized in Bangladesh, making 4 prices very competitive. Competitive labor force Bangladesh is internationally very competitive in terms of labor cost. Labor cost may account for up to 50% of the overall manufacturing cost for APIs. Since Bangladeshi manufacturers are not fully backward integrated, they 4 can capture only part of this competitive advantage. Export regulations & prospects Currently, there are no restrictions on the export of pharmaceuticals. The countrys existing Export and Import Policy is followed. According to the new three-year Export Policy for FY07 to FY09 pharmaceutical products were included in the list of thrust sectors. Outbound passengers will be able to carry USD200 worth of products with them abroad. The allowable limit for pharmaceutical samples export is USD10,000. The government has plans to introduce a policy to boost export of pharmaceuticals in the near future. Import license of raw materials are issued to all manufacturers which allow them to import 6, 7, 8 from most parts of the world. Case Study : Success in Outsourcing 10 Facing lagging sales of patented drugs by MNCs like GSK and Pfizer in their home markets, declining R&D revenues, and rising costs, many MNCs have turned to contract manufacturing and research services (CRAMS), comarketing alliances, outsourcing of research and clinical trials to reduce costs, increase development capacity, and trim the time to market for new drugs. These strategies permit MNCs to focus on their core competencies, such as drug discovery and marketing, rather than on manufacturing. India has emerged as the principal destination for global pharmaceutical companies. Over the last 5 years the CRAMS industry has been contributing close to 8% of the total Indian pharmaceutical business. Developed countries are expected to further propel the CRAMS industry to grow at nearly 32% from 2006 to 2013 as& India pharmaceutical companies quality is - Although as an LDC, both Bangladesh Investment in R&D bulk offers drug / global API facility and cost advantage. patented products, it is difficult to source raw materials or allowed to manufacture Investment Opportunities APIs to produce patented drugs. As countries like India, China and Brazil are all sources of raw materials and signatories of WTO, it is expected that they will not produce raw materials of patented products. In order to take full advantage of the Post-2005 Opportunities, Bangladesh needs to invest in DMF Standard API Facilities with all basic infrastructures, amenities and special facilities. API facilities will not only play a significant role in import substitution, it will also open the doors 4 to mass scale exports. To be able to do this, proper R&D is required. Bangladesh currently has to import 80% of the API from countries including India and China as the local R&D required 82
10

Success in outsourcing

Development of domestic API market

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

Outsourced R&D - leveraging a low cost base

Investment in R&D outsourcing facilities. facilities. Due to low skilled labor costs and other factors such as subsidized power, Bangladesh has an advantage as a location for possible outsourced R&D. Bangladesh might collaborate with global players and perform outsourced R&D activities for them. Investment in contract manufacturing facilities facilities. ities Considering the large number of medium and small sized pharmaceutical firms in Bangladesh requiring funds to setup production units for specific drugs, a potential investment opportunity lies in establishing such plants. Bangladesh could become a contract manufacturing venue for global players. The toll manufacturing industry in India was worth 3 USD350 mn in 2007. Investment in R&D for developing new drugs. Investment in R&D facilities would enable Bangladesh to develop its own molecules and drugs once the patent exemption period will be over in 2016. In order to compete with global players, the industry has to come up with its own portfolio of product patents. The concept of a privatized common R&D facility can prove to be very promising as a majority of the local companies might not be able to establish self-owned R&D facilities. India has recently started investments in new drug development after entering the patent regime. In 2005, Dr. Reddys committed 14 % of its annual sales to R&D, 10 whereas, Ranbaxy allocated approximately 7 %.

Developing a toll manufacturing sector

R&D for new drugs key to developing competitive advantage post 2016

Plant certification for foreign markets

Investment in plants for certification in developed markets. Bangladesh has export opportunities in the developed and regulated markets in the form of contract /toll manufacturing and under-license manufacturing. In order to capitalize on these export opportunities, manufacturers of Bangladesh need to invest in manufacturing plants and apply for certification (e.g. USFDA, UKMHRA and TGA) in regulated markets. Optimum capacity utilization and investment in plants is important for 3 penetrating the export market. Investment in injectables, insulin and vaccine plants. To take full advantage of the Post 2005 opportunities, the country should invest in injectables, insulin and vaccine plants, none of which are currently present. This would ensure substantial import substitution.

Injectables, Insulin and vaccine production

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Conclusion The pharmaceutical industry in Bangladesh is currently the largest among the LDCs which are not required to comply with patent rights. As a result, local companies can take advantage of reverse engineering and produce patented products at lower cost. Furthermore, India has recently been (2005) included into the patent regime. This makes the generics market of Bangladesh much more attractive than that of India and China. Vaccine and injectable product lines remain relatively underdeveloped. As Bangladesh imports a major share (80%) of its API, there is a scope for the setting up of API manufacturing plants which will reduce the cost of finished goods making the Bangladesh Pharmaceutical Industry much more competitive in the domestic and export market as well. In the long term Bangladesh should prepare for the Post 2016 phase. Heavy investment in R&D is essential. It is likely that a majority of the companies will not be able to afford quality R&D facilities. The Contract Research And Manufacturing Services (CRAMS) structure in India can be seen as an example as Bangladesh presents similar advantages as an outsourcing destination for manufacturing and research. The global pharmaceutical markets will more than double in value to USD1.3tn by 2020 and the emerging markets are expected to grow at double digit figures in the near future. With the right strategy Bangladesh has every chance of capturing a substantially larger market share. References References:

1. 2. 3. 4. 5. 6. 7. 8. 9.

IMS. (2008). IMS Quarterly Review, 4th Quarter 2007. Begum, R. (2006). Pharmaceutical industries: Potential and Possibilities. NDC Journal. Available at http://www.ndc.gov.bd/pdf/2007/73-89.pdf. Hassan, N. (2005). Post WTO opportunities & Bangladesh Pharma Sector. BAPI, February 2005. GTZ. (2007), Study on the Viability of High Quality Drugs Manufacturing in Bangladesh. Federal Ministry for Economic Cooperation and Development. IMS. (2006). Intelligence. 360-Global Pharmaceutical Perspectives. Official website of Board of Investment Bangladesh at www.boi.gov.bd. Primary sources: interviews with officials of GSK Bangladesh. Official website of Export Promotion Bureau at www.epb.gov.bd. Official website of Directorate of Drugs Administration (DDA) at www.ddabd.org.

10. Greene, W. (2007), Emergence of Indias Pharmaceutical Industry and the Implications for the U.S. Generic Drugs Market. USITC: Office of economics working paper. 11. Primary sources: interviews with officials of Directorate of Drug Administration. 12. World Bank. (2007). Improving the Competitiveness of the Pharmaceuticals Sector in Bangladesh. World Bank Draft Policy Note. 13. Official website of Centre of Trade and Development at www.centad.org.

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Healthcare

Healthcare
The global healthcare industry was worth USD 4.5tn in 2006 and is still expanding. Medical tourism in Asia is experiencing a growth rate of 20-30%. India, Thailand, Malaysia, South Korea and Singapore are attracting the maximum number of medical tourists by providing quality medical service at economic prices. Bangladesh can take advantage of its weak currency and strategic location in the Asian hub to attract medical tourists. Bangladesh needs to invest heavily in health care infrastructure, travel and accommodation facilities. World class medical service providers like KPJ Healthcare (Malaysia), Bumrungrad (Thailand) and Apollo Hospitals have opened operations in Bangladesh. Bangladesh has made significant progress in the healthcare sector including absolute eradication of polio, the lowest maternal mortality rate in South Asia, a sizeable reduction of fertility and child mortality rates. Substantial investment is required in Bangladesh if it is to reach the standards of neighboring countries in terms of the medical infrastructure and facilities. The growing purchasing power of a sizable middle class provide opportunities for investments in hospitals, diagnostic centers, laboratories, insurance companies and fitness centers in Bangladesh. As developed countries are forecast to run short of their domestic supply of medical staff, there are significant opportunities in training and exporting manpower from Bangladesh. Global pharmaceutical giants can lower their research and development costs by shifting the pre-clinical trials of drugs to cheaper locations like Bangladesh.
Firoz Ahmed Ph.D firoz.ahmed@at-capital.com Tami Zakaria tami.zakaria@at-capital.com Ahmad Sajid ahmad.sajid@at-capital.com

Asian Tiger Capital Partners

Telemedicine can be a means to provide superior medical services to 70% of the total population residing in the rural areas of Bangladesh. This will require significant support from information and communication technology infrastructure.

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With its large population of around 15 150mn people needing improved healthcare, Bangladesh has significant investment opportunities. These are wide ranging and span across various subsectors. For example, medical tourism for the NRBs, health insurance for more than 98% of the non-insured population, telemedicine for the geographically dispersed population, pre-clinical trial centers for local and global drug manufacturers and export of trained medical staff to developed countries. Bangladesh has made excellent progress in many of the key health indicators. It has fully eradicated polio and 97% of the population has access to safe drinking water. This has been possible with the increased participation of the private sector, mainly NGOs and MFIs. The population growth rate is now 1.54% down from 2.5% in 1990. The infant mortality rate is lower than India, Nepal and Pakistan. The proportion of underweight children has gone down from 72% in 1986 to 51% in 1 2000. Tertiary healthcare is mostly Dhaka city based. Outside Dhaka primary and preventive healthcare is provided by community health clinics, Upazilla Health complex, Government hospitals and healthcare centers of NGOs. Most of the specialist doctors are stationed in Dhaka and work with private hospitals. The medium sized hospitals and clinics based all around the country refer patients to private and government hospitals in Dhaka, especially for heart surgery, organ 12 transplants and other major treatments. Areas for improvement: Lack of world-class medical infrastructure support, especially in diagnostic facilities. Mostly patients go abroad for diagnosis of disease and ultimate treatment. Inadequate number of skilled manpower. The doctor to population ratio is 1:3,169 and nurse to population ratio is 1:6,442. The number of specialist doctors with international recognition is few. Health insurance plans are rare. WHO statistics show that 0.1% of the population was insured in 2005. This sector is unprofitable due to lack of control over costs, resulting from lack of standardization of treatment 2 charges at hospitals.
Figure 1: Key health indicators of Bangladesh, 2005 Total population (mn) Hospital beds per 10,000 population Physicians per 10,000 population Population per nurses Total expenditure on health (THE) as % of GDP Public expenditure on health as % of THE Private expenditure on health as % of THE
Source: Ministry of Health and Family Welfare, Government of Bangladesh
13

A vast customer base for healthcare

Polio has been fully eradicated

0.1% of the Bangladeshis are insured2

140 3.43 3 6,442 3.4 31 69

Joint venture hospitals received USD 110mn investments in past 5 years

Bangladesh has attracted number of reputed international healthcare service providers in the last 5 years. KPJ Healthcare of Malaysia operates as a joint venture partner with United Hospitals Ltd. Square Hospital in Dhaka has an affiliation with Bumrungrad Hospital of Thailand. Asias biggest healthcare service 14 provider Apollo has been operating in Bangladesh since 2005. These hospitals 86

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attract patients who are in need of tertiary medical care. As the middle income groups of the population are gaining purchasing power, they are being targeted by top medical service providers. There are mixed results regarding performance of these hospitals. Case study: study: Apollo Hospital India vs Bangladesh experience
3, 15, 16

Apollo Hospitals Group of India has become the largest healthcare service provider with 41 hospitals in and around India within 25 years since inception. Some of the key facts about Apollo in India are:

Employs over 4,000 specialists and super-specialists and 3,000 medical officers spanning 53 clinical departments in patient care. Achieved a 99.6% success rate in cardiac bypass surgery A 70% success rate in Bone Marrow Transplant

The success of Apollo in India comes from the combination of world renowned doctors, adoption of the latest technology and strong customer focus. Apollo Hospitals joint venture with German company Deutsche Krankenversicherung (DKV) is expected to tap into the nascent health insurance market in India from FY08. Apollo DKV Insurance Company offers comprehensive cover products, out-patient products and hospital cash policies. Apollos experience is quite different in Bangladesh since its arrival in 2005, where lower take up and occupancy has somewhat limited investment in associated products and services. While occupancy rates in India are around 77% they are much lower in Dhaka. There is less provision of related services in Dhaka for example telemedicine and medical tour plans are available in India while they are not in Dhaka.

Global healthcare trends are changing

The global healthcare healthcare industry is currently undergoing significant change. change. Total health care expenditure across the world was USD 4.5tn in 2006. Of this, US & OECD countries account for USD 4.2tn. Global pharmaceutical sales account for USD 602bn, with an annual growth rate of 7%. The biotechnology industry has mushroomed since its inception and at present is equivalent to USD 50.7bn. China, 4 USA, India, Australia, and France are market leaders in biotech. Although the tourism sector as a whole is growing by 44-6% a year in Asia, medical tourism is growing between 2020-30% year on year. With increasing medical costs in developed nations and increased rate of non-insured population, medical tourism is a growth area. With an estimated 1.5mn people visiting countries like Thailand, Singapore, India, South Korea and Malaysia for medical purposes today, the sector 5 is expected to swell to USD 4bn in Asia by 2012. Globally, the clinical trial industry industry is estimated to be worth over USD10 USD10bn 10bn and is growing at 15% a year. It takes around USD 800mn to bring a new drug to market, 6 40% of which goes behind drug testing. The pharmaceutical giants are striving to find cheaper sources of facilities for developing new drugs. In India, with low capital costs and less time required to recruit volunteers for clinical trial centers, this business sector is expected to grow at a CAGR of 36% from 2006 to 2011 and be 7 worth USD 1bn. 87

Clinical trial industry growing at 15% per year

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Opportunities for Investment The healthcare sector in Bangladesh has moved a long way during the last few decades. As the global healthcare industry is experiencing shifts, it is the right time to work out a comprehensive plan by involving both the public and the private sector to maximize the opportunities that lie ahead. Establishing a worldworld-class hospital The primary target market will be the upper income section of Bangladeshis who go abroad for medical treatment and the 4,000,000 NRBs worldwide. Taking advantage of the weak currency and strategic location in the Asian hub, Bangladesh can also attract significant number of medical 1 tourists from developed countries. Different approaches may be taken for establishing the hospitals either as a greenfield project or acquisition of existing non-performing hospitals in both the public and private sectors. Joint ventures with leading healthcare providers like Parkway Hospitals in Singapore would provide credibility and access to leading service provision. To attract tourists a comprehensive range of treatments would need to be available - for various disease classes including cardiology, nephrology, ophthalmology, neurology, dental, orthopedic, ENT and cosmetic surgery facilities. Staffing the the hospital with a pool of specialist doctors, doctors such as reputed NRB doctors based in the UK or the USA, will be a key factor in determinant of success. Both public and private incentives should be developed to make Bangladesh an attractive destination. The hospital should be backed by a world class diagnostic center. center The diagnostic center will be equipped with state of the art technology in diagnosing every major disease class. This is another precondition for this hospital to be successful. Health insurance administration In Bangladesh, the health insurance market is still ill explored. Delta Life Insurance has a hospitalization insurance scheme. Some of the corporate houses offer group insurance for their employees. NGOs like Grameen Bank provide micro health insurance schemes for rural Bangladeshis. As health care services are becoming more expensive there is an opportunity for expanding health insurance market. Joint ventures with foreign insurance companies, third party administrators and specialized health insurance plans (Plan for diabetics for instance), can pave the way for the development of the health 18,20 insurance market. Establishing a midmid-range hospital A mid range hospital may be established to tap a large and growing middle income section and could be located in all major cities. It has been estimated that the middle class accounts for 22% of the urban 8 population. Creating telemedicine centers in different different districts With 80% of the population being rural, access to treatment in remote locations is required. Telemedicine involves the remote diagnosis, monitoring and treatment of patients via video conferencing over 19 the internet.

The need for world class credible hospitals for medical tourism

Attracting foreign and NRB doctors

State of the art technology in diagnostic centers is required

The health insurance market remains undeveloped; an opportunity for JVs with foreign insurance providers

Provision of medical care for large and growing middle class

Telemedicine, accessing the rural population

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Development of preclinical trial centres

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

Nurse training centres: a global shortage in supply of nurses

Medical City: One stop shop

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References:
1. Official website of World Health Organization available at http://www.searo.who.int/en/Section313/Section1515_6922.htm. Official website of World Health Organization available at http://www.who.int/nha/country/BGD.pdf. Official website of Apollo DKV Health Insurance available at http://www.apollodkv.co.in/home/EasyHealthIndi.aspx. Official website of Themedica available at http://www.themedica.com/industryoverview.html. Official website of hotelmarketing.com available at http://www.hotelmarketing.com/index.php/content/article/060410_medical_touris m_asias_growth_industry. Goozner, Merrill (2004), Thee USD800 Mn Pill: The Truth Behind The Cost of New Drugs. University of California Press. http://www.prlog.org/10036648-booming-clinical-trials-market-in-india.html. Agri Food Trade Services, Canada. (2005). Agri Food-Past, Present, & Future Report Bangladesh. New Zealand Trade and Enterprise (2007), Global Trends and Issues in the Corporate, Industry and Government Training Markets.

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3.

4.

5.

6.

7. 8.

9.

10. Official website of BMJ at http://www.bmj.com/cgi/content/full/320/7241/1030. 11. Journal of Advanced Nursing available at http://www.efnweb.org/version1/en/documents/PressReleaseEuropeannursingshortage.pdf.

12. Primary sources: interviews with Lecturers of Institute of Health Economics, University of Dhaka; Director, Ministry of Health and Family Welfare. 13. Official website of Ministry of Health and Family Welfare, Government of Bangladesh at www.mohfw.gov.bd. 14. Scoop. (2005). Philips helps provide rural healthcare in India.. 15. Official website of Apollo Hospitals Group at www.apollohospitals.com. 16. Primary sources: telephone interviews with officials of Apollo Help Desk, Dhaka. 17. Several Sources Compiled by Wikipedia. 18. Official website of Grameen Bank at http://www.grameeninfo.org/bank/index.html. 19. United Nations. (2006). The World Urbanization Prospects: The 2005 Revision.

20. Ford Foundation. (2000). Roundtable on Microinsurance Services in the Informal

Economy: The Role of Microfinance Institutions.

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Biotechnology

Biotechnology

While the global biotechnology industry is booming, Bangladesh is at an early stage of development. However, we believe there is significant potential in this sector, especially in the agricultural and healthcare sectors. The potential areas of development and commercialization of the biotechnology sector in Bangladesh were studied by a Thai Biotechnology team. The team identified several areas in the agricultural sector, such as Ornamental Plants and Cut Flowers, Food Processing Industries, Mushroom Cultivation Technology, Medicinal Plants and Herbal Products Technology, Microbial Seed Cultivation Technology, Fruit Crop Production, Potted Plants and Cut Foliage Production, Bamboo and Potato Starch Industries. Bangladesh should pay special attention to the TRIPS agreement (Trade Related Aspects of Intellectual Property Rights) before the year 2016 is over, and upgrade its generic pharmaceutical sector by integrating biotechnology-driven pharma products. Knowledge development and transfer is critical. Leveraging the NRB platform, investment in education and research is important. Bangladesh should proactively form partnerships with the international Biotech industries especially in the agricultural and health care sectors, e.g. Thailands National Center for Genetic Engineering and Biotechnology, Monsanto (USA), Serum Institute of India Ltd, and Biocon India Group, etc. The suggested areas of investment opportunities are in the agrobiotechnology which include cotton production and processing (backward linkage to RMG/Spinning Mills), potato, rice, and in medicinal biotechnology in vaccine and recombinant insulin manufacturing.

Asian Tiger Capital Partners

Mir Firoz Ahmad, Ph.D. firoz.ahmad@at-capital.com

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Biotechnology can play a significant role in Bangladeshs Bangladeshs push for new export sectors. sectors . Unlike its neighbor India, Bangladesh has yet to develop a significant 1 biotechnology industry and capitalize on a fast growing USD 100bn global industry. Agriculture and pharmaceuticals are key sectors with specific and proximate applicability in Bangladesh. Agricultural biotechnology, be it plant biotechnology, animal biotechnology, fisheries or aquaculture could positively impact the countrys largest sector by enhancing product yield, innovation and resistance to natural hazards. Many of the next generation of medicines (e.g. antibiotics, antibodies, hormones and vaccines) will be biotechnology derived if the local pharmaceuticals industry is to remain competitive in export markets, after the TRIPs market protection lapses in 2016, investment in R&D and new product development is critical. How can Bangladesh learn from and leverage from its proximity to India. The global biotechnology industry has expanded rapidly over the past five years, with annual growth rates consistently above 15%. Revenues of publicly listed biotech companies worldwide grew 18 % in 2005 to USD 63.1bn, an all-time high in the sector's 30-year history. In India for example, there has been a biotech revolution, which continues to expand fast, with already 280 biotech companies and 180 bio-product suppliers contributing to 2% share of the global market. The Indian biotech product market is forecast to be USD 4.2bn in the year 2010 with 2,3 investment opportunities of USD 2bn over the next five years. The application of biotechnology With 150mn people in Bangladesh, the demand for basics such as food, drugs, clothing and health care, is substantial. With use in yoghurt to rice to leather and vaccines biotechnology has wide and varied applications. Biotechnology and agriculture in Bangladesh While biotechnology and GM innovation have revolutionized product development globally with high yielding, disease free crops, resistant to adverse environmental conditions, Bangladesh has not benefitted from such advances to the extent it could, due to limitations in investment in business and research infrastructure. The scientific community, NGOs and the government created the National Institute of Biotechnology (NIB) in 1999 which introduced a bio-safety guideline. The successful introduction of GM products require research and field testing to develop tailored products and to ensure there are limited negative impacts to the surrounding ecosystem. Given the importance of agriculture in its economy and the current shortfall in production for domestic consumption, Bangladesh could benefit significantly if agricultural output could be increased. Rice is the staple food for about 150mn people and is grown on about 10.5mn hectares. Bangladesh produces about 25mn tons of rice annually. With the population forecast to grow by 2mn annually. Bangladesh is expected to need about 30mn tons of rice annually in the year 2021 while total rice growing area is forecast to shrink to 10.3mn hectares in the same period. Rice yield would need to 4 increase from the present 2.44 to more than 3.75 tons/ha. GM rice strains capable of being grown all year round coupled with improvements in irrigation area, technology and mechanized cultivation can provide the solution.

Biotechnology could revolutionize agriculture and pharma sectors

Global biotechnology revenue was USD63.1 bn in 2005, an all-time high in the sector's 30-year history

Bangladeshs rice production has to increase to support the growing population

In 2003, a four member expert team from Thailand (sponsored by SEDF and 92

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Thai biotech study group assessed the prospects for the commercialization of biotechnology in Bangladesh

BIOTEC) undertook a study to assess the prospect for commercialization of biotechnology in Bangladesh and to identify areas for development and promotion. 5 They highlighted the following areas: Ornamental Plants and Cut Flowers Food Processing Industries Mushroom Cultivation Technology Medicinal Plants and Herbal Products Technology Microbial Seed Cultivation Technology Other small-scale agro-businesses were also identified as having significant potential for business promotion: Fruit Crop Production Potted Plants and Cut Foliage Production Bamboo Potato Similar initiatives need to be made in the area of food production, especially, rice, corn and pulses.

TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement ends in 2016

There is a need for more science graduates

Field testing and preclinical trial investment

Biotechnology and Pharmaceuticals in Bangladesh. Bangladesh. Many of the next generation medicines will be biotechnology derived, especially in the areas of antibiotics, antibodies, hormones and vaccines. There have been no significant initiatives from any of the pharmaceutical companies to incorporate biotechnology derived product lines in their portfolio. Companies are largely engaged in producing generic medicine. The TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement exemption lapses in 2016 as such the generics market will be lost and most of the companies will lose business to the foreign companies. Infrastructure constraints in Bangladesh. Bangladesh. There is a shortage of qualified scientists in the biotechnology area. In the last 50 years Dhaka University has produced approximately 5,000 Life Science graduates, many of which work abroad. The government has recently taken initiatives starting with 12 science universities. There are 11 research organizations where biotechnology has relevance, although this has not been applied extensively. Biotechnology does not come without its risks. It is imperative that sufficient field studies, in the case of agriculture, and preclinical and clinical trials, in pharmaceuticals are conducted. Impact on the population and ecosystems has to be assessed. Releasing and utilizing biotechnology derived products without testing and pilot studies, be it plant or animal, run potential risks such as bug resistance, food chain pollution and medical side effects. Indias success in biotechnology sector lessons to to be learnt. learnt. India has been 7 successful in growing its industry for many reasons: A skilled workforce 3mn graduates, 700,000 post graduates and 1,500 PhDs qualify in scientific streams each year in India. 15,000 scientists are estimated to be engaged in Indias biotechnology sector. NRIs - It is estimated that 15% of the scientific population of pharmaceutical and biotechnology companies in the US are of Indian origin. Knowledge transfer has been facilitated by NRIs going back to India or by arranging entry/alliances of foreign companies. 93

Lessons to be learnt from India

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Alliances and joint ventures with leading global names such as Monsanto, Roche, and Agilent Technologies to name but a few. Active government support - the Indian government provided incentives for biotech firms and fostered relationships with international institutes such as the National Institute in Health (NHI) in the US. World-class education and research infrastructure - an excellent network of research laboratories Stakeholder collaboration in R&D is necessary necessary. essary. Effective international collaboration in research and development would form the base for technological knowledge transfer. Currently most R&D initiatives are at the individual level, The government needs to be proactive to attract foreign technical expertise. The Government, private sector and NGOs need to collaborate in order to succeed. Leverage NRB knowledge. knowledge. The Bangladesh government and private sectors should create viable opportunities to attract suitably qualified NRBs back to Bangladesh in areas of biotechnology such as genetic engineering, cell culture, cell fusion, protein engineering and enzyme technology. Investment in education and research. research. Bangladesh needs to produce more graduates and post-graduates in this rapidly advancing field and introduce suitable training that would allow research ideas to evolve and produce marketable products. Targeted international investment for knowledge transfer. transfer. Target partnerships/joint ventures with global firms who have already formed JVs with firms in Asia. For example, in India, in the agricultural sector, with Mahyco Monsanto Biotech (India) Ltd (MMBL) to produce and market cotton to support Bangladeshs garment sector, or with Serum Institute of India to produce vaccines for the health care/pharmaceutical sector. The prospects of access to a large domestic market may appeal to MNCs. Thai investment in Bangladesh: Bangladesh Thai businesses have conducted research and invested approximately USD 60mn in the past 5 years in Bangladesh in various 2 sectors including, agriculture and poultry products . Further specific investments and partnerships with Bangladesh by the Thai entrepreneurs in the agro sector are potential investment areas. Specific products The following are the specific areas of investment opportunities: AgroAgro-biotechnology

Collaboration in R&D is fundamental

Leverage NRB platform

Investment in education

Knowledge transfer through JVs; Leverage proximity to Indias booming biotech industry

Deepen existing Thai interests

Some products to focus on

Cotton production and processing (backward linkage to RMG/Spinning Mills) Potato Rice
Medicinal biotechnology

Vaccine manufacturing Recombinant insulin

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Conclusion Biotechnology applies to many sectors producing new products, improving yields and protecting against environmental risks. With a large domestic population, Agriculture and Pharma sectors could benefit significantly. Biotechnological research in Bangladesh has been initiated only recently. But with active government support, infrastructure development, investment in technical skills could transform this sector and other connected sectors. Knowledge transfer, leveraging the NRB platform and alliances and joint ventures internationally should be developed. The potential benefits for the private sector and wider society is considerable.

References 1. RNCOS. (2005). Indian Biotech Industry 2005. Available at http://www.piribo.com/publications/biotechnology/indian_biotech_industry_ 2005.html Pharmaceutical and Hospitality Optimization, Onco life Sciences Pvt. Ltd. Conference Reports, The Joint UK Biotechnology Company Showcase/ Genesis VII, Queen Elizabeth II, Conference Centre, 13th December 2007, London, UK. http://www.pharmaprojects.com/conference_reports/Joint-UKBiotechnology-Show-jan2008.htm Rice in Bangladesh, July 1, 2007, Bangladesh Rice Knowledge Bank, http://www.knowledgebank-brri.org/riceinban.htm National Center for Genetic Engineering and Biotechnology. (2003). The Potential Commercialization of Biotechnology in Bangladesh. Prepared for South Asia Enterprise Development Facility (SEDF), Bangkok, Thailand. Choudhury, N., & Islam, M. S. Biotechnology in Bangladesh, Asian Biotechnology and Development Review, National Institute of Biotechnology, Bangladesh Atomic Energy Commission, Ramna, Dhaka1000. Available http://www.ris.org.in/abdr_nov4.pdf BIOTECHNOLOGY. (2005). Unprecedented Growth Opportunity. Available at http://72.14.235.104/search?q=cache:thAAZDk98bEJ:ibef.org/download/bi otech19jan.

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Light Engineering

Light Engineering

The annual revenue generated by the sector amounts to around BDT 9,500 crores (USD 1,600mn). This contributes to 2.15% of national GDP. A growing and increasingly affluent middle class indicates demand for consumer durables. As the demand and usage of engineering and electronic goods increases, the demand of light engineering goods is also increasing Export-oriented production in light industries has gained momentum in the past few years. The plastic industry has experienced significant export growth 117% over the last year. Products worth USD 209mn were exported during the last fiscal, from USD 96.5mn in the previous year. At 3.6 kg per capita a year, plastic consumption in Bangladesh is one of the lowest in the world. With rapid economic development this figure is bound to increase significantly as demand for plastic increases. Currently, 40% of the raw materials required for plastic production are imported. There is a probable USD 260mn import-substitution industry that can be met through recycling plants. The Agro-tools sub sector of the LES is worth USD 217mn with potential imports substitution market worth USD 289mn. Furthermore, as India becomes more industrialized, it presents an added potential export market. There is a large low-wage labor force employed in the sector. However, due to insufficient infrastructure they lack adequate education and training. Investment is in Technical Training would be lucrative as the sector expands. Chinese and Indian bicycles control over 100% of the domestic market. The three bicycle manufacturers in Bangladesh manufacture high quality bicycles for the US and EU market. In 2007 Meghna Bicycles won a USD 13mn export order to Germany. The sector presents significant opportunities for further expansion into the local and export markets.

Asian Tiger Capital Partners

Sanwar Ahmed Sanwar.Ahmed@at-capital.com Dewan Ashrakat Hossain Ashrakat.Hossain@at-capital.com

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The LE Industry in Bangladesh

The primary subsub-sectors of the Light Engineering Sector (LES) in which Bangladesh currently currently has a strong presence are bicycle manufacturing, agroagro-tools, capital machinery parts and plastics. plastics LES output plays a critical role in key national sectors such as agriculture, transportation, construction and RMG. Every year, USD 200mn worth of spare parts are imported. Bangladesh is a country poised to further develop its light engineering industry to meet both local needs and explore export 1,2 markets. In Bangladesh, years. Bangladesh, the LES has grown with informal cottage status over the years Light engineering businesses have been principally set up through private initiatives with little assistance from the government. The sector is characterized by small, family based businesses, which operate in small scale using back-dated 6 technology. The plastic industry has grown at over 20% per annum over the last decade. decade The domestic market was valued at approximately USD 116mn in 2006. In 2007, total exports were worth USD 209mn of which USD 145mn was through the RMG sector. There are currently around 3,000 small, medium and large plastic manufacturing 4 units operating across the country.
Figure 1: Average per capita consumption of plastic Consumption kg/year Bangladesh India China North America World
Source: Katalyst11

The plastic sub-sector is growing significantly

3.6 5.0 24.0 90.0 20.0

Figure 2: Comparison of the placit market of India and Bangladesh Market size Growth rate Contribution to GDP
Source: Katalyst11

Bangladesh USD 116mn 20% 0.16%

India USD 6bn 12% 0.70%

The agro-tools sub-sector is yet to explore export markets

The agroagro-tools industry is one of the largest industries in the LES. LES Annual average production of agro machinery, tools, equipment and spare parts is around USD 217mn with imports of USD 289mn. There are over 2,400 enterprises in Bangladesh involved directly with the Agro-tools industry. Of the total cultivable land in Bangladesh, 5.2% uses tractors, 32.9% power tillers and 23.8% spraying and threshing. Furthermore, neighboring countries like India, China, Pakistan, and 3 Myanmar, also agrarian economies could be potential export targets. LE is an important support sector for the RMG & Textile industry. There are almost 9,500 units in the RMG & Textiles industry in Bangladesh. The LE sector supports these units and also 148,342 (SME) units in the domestic handloom industry through regular maintenance, repairs, replacement spares, as well replacement and expansion of the different machines and equipment used. The rapid growth of the RMG & Textile sectors bring forth a promising opportunity for the expansion of the LE Sector. 97

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The key dynamics of the LES
Access to technol technology echnology is one of the main determinants of competitiveness. competitiveness Use of dated technology in the LES hampers productivity and degrades the quality of the 7 output making them unable to compete with international products. The SMEs in the industry lack adequate access access to finance. Banks and other financial institutions are reluctant to finance these small setups due to the lack of 6 collateral, proper documentation and risk associated with these ventures. Access to research, development and quality testing is inadequate. inadequate. Due to the lack of adequate capital, most of the light engineering firms invest in R&D activities. The current standard of the quality testing facilities at BANSDOC, BUET and BSTI are 1 inadequate in meeting international standards. The firms in the LES LES lack management structure. The management structure of the LES firms lack sophistication with small firms having 1-3 employees. These small and medium firms are largely family owned with 70% being sole proprietorships. Due to a lack of structured management, the enterprises are unable to expand their 6 businesses. OnOn-thethe-job learning is the primary form of training. In all areas of the LES sector, although owners (59%) and plant managers (73%) have some work relevant technical qualifications, the workers are all virtually unskilled when they enter the sector, learning their trades is through informal, on-the-job training. Despite this, the 3,9 workforce is highly adept and skillful at emulating products. The LE sector relies heavily on recycled metals. metals A large majority of the raw materials are sourced from the ship breaking industry. The materials, some 20 years old or more, are sorted, recycled and sold without testing or certification. Raw materials, parts, and components for machinery have to be imported at very high import duty. The National Board of Revenue needs to design policies that will 3 ensure cheaper imports of raw materials. Lack of market intelligence intelligence. ntelligence The firms in the LES receive very little or no market information about the international or domestic market. There is no sophisticated system which provides this information resulting in an inability to promote their 1, products overseas.

LE is one of the Thrust Sectors

The Export Policy 20062006-09 recognizes the LES as one of the thrust sectors. sectors According to the export policy the government has devised several policies to promote the LE sector. These include project and export loans with reduced interest rates on a priority basis; Income tax exemptions; and subsidies for utility services 13 such as electricity, water and gas.

Strengths of the LES

The LES presents several strengths through which it can emerge as one of the leading industries for the country. The local market is unsaturated and there is sufficient demand within the various manufacturing concerns such as textile mills, railways, jute mills, shoe manufacturers, sugar mills, RMG and washing plants. The cheap workforce, low start up cost and simple production process provide significant incentive for growth. Last but not least, as a Thrust Sector, the Government provides substantial incentives for the sector to develop as an export 98

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based industry.
1,3,4 5 study: StoryTransCase study : A Success Story -Trans -world Bicycles Co. & Meghna Bangladesh Ltd

Trans-world Bicycle Co Ltd and Meghna Bangladesh Ltd, both part of the same group, have been exporting bicycle parts and full bicycles, to Europe for more than a decade. The companies' roots lie in the privatization of the former government owned Bangladesh Cycle Ltd. In October 2007, it was announced that the companies had won a USD 13 mn export order at the 'IFMA Cologne Show' in Germany. Chinese and Indian manufactures supply almost one hundred % of Bangladesh's domestic demand for bicycles, and the Chinese in particular have dominated export markets in the West. This has meant that Trans-World Bicycle and Meghna Bangladesh Ltd have needed to be extremely competitive. It has not just been a question of the cheap availability of labor in Bangladesh, but of the need to ensure a high and consistent quality level. Exports have also been helped by a system of bonded warehouses and by duty free access to the European market.

Investment Opportunities In the LE Sector

Training Centers can be a lucrative investment. Due to the current lack of proper training facilities, there is a demand for institutions that will provide technical knowledge and job-specific training to the semi-skilled labor force in this sector. Technical Training Institutes (TTIs) can act as the source of skilled labor that the industry currently lacks. institute. nstitute. The industry Investment metal testing, R&D facilities/ private testing i currently lacks adequate metal testing or R&D facilities, making it impossible to judge the quality of the raw materials. Metal testing facilities can ensure the quality of local products meet international standards. Recycling plants for plastics. For the plastic manufacturers, the price of raw materials is by far the major cost component. Many plastic products are made from recycled plastics raw materials. This keeps the price of lower quality goods competitive and it reduces the amount of plastic waste in the environment. The present demand for plastic resin is 540,000 tons/year, the supply is only 438,000 tons of which 40% is met through imports. Recycling plants can be a costcompetitive substitute to imports in meeting the increasing demand of raw materials for the plastic industry. Investment Investment in a LE Industrial Park. An industrial park is a large-scale cluster of LE firms working in a common area with access to infrastructural and cost leverage that they cannot acquire on their own. Firms can benefit from research and testing facilities; technical training facilities; access to modern technology and all other infrastructural resources. Also, the small firms will be able to outsource to each other which will increase productivity through possible specialization of labor. As a majority of the LE firms are small in size, an industrial hub will ensure increase in production efficiency and quality assurance, cheaper access to raw materials; greater subcontracting and access for export facilities.

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The industry can move into larger larger scale production. The Bangladeshi LES currently operates in a very small scale, targeting primarily import-substitution. There is immense potential for the country to export many LE products including agro-tools, plastic goods, bicycles and automobile spare parts. Investments will enable the industry to enjoy economies of scale and compete with the foreign products. Foreign Manufacturers can setup OEMs. Since LES in Bangladesh is already an established industry; it has the potential to act as an outsourcing destination for various Original Equipment Manufacturers (OEMs). Major OEMs are now focusing more on R&D of new models of vehicles and the engineering work (mainly labor and process oriented steps) has been outsourced to suppliers, such as India and Pakistan who have excelled in this area. With investment in the LES, Bangladesh can provide the same capability. Consequently, the size of the automobile sector in 8 India is USD 15mn with exports worth USD 2.9bn. The Indian industry is moving towards automobile manufacturing presenting an opportunity for outsourcing of spare parts manufacturing to Bangladesh. Conclusion The LES is a sector of significant opportunity. As a supporting industry to many of the other sectors, it has a considerable impact on the overall development of the country. The competitiveness of the LES has been proven on the international scene with the recent success of the plastic sector. Moreover, the Export Policy for FY07 to FY09 has included the Light Engineering Sector as one of the thrust sectors. A low-wage semi skilled labor force, low infrastructure costs and government initiatives provides a significant platform for the industry to move into large scale production and export diversification. The industry requires investment and innovations if it is to fulfill its true potential.

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References 1. Islamic University of Technology. (2006). Helping and Advising SME Sectors for Employment Generation. Available at www.iutoicdhaka.edu/.../4.%20Helping%20and%20Advising%20SME%20Sectors%20 for%20Employment%20Generation.pdf. http://www.sedf.org/light_engineer.php. Katalyst. (2005). Sector Brief Agro Tools Industry. Available at http://www.katalystbd.com/downloads.php?catid=6. 3. 4. 5. Katalyst. (2005). Sector Brief Plastics. http://www.katalystbd.com/downloads.php?catid=6. Available at

2.

Uddin. S. S. (2007). Riding to export success, local bicycle makers go global. Published in The Daily Star on 13 November 2007. Alam, M. S., & Ullah, M. A. (2006). SMEs in Bangladesh and Their Financing: An Analysis and Some Recommendations. The Cost and Management, Vol 34, No. 3, May-June 2006, pp.57-72. Adhikary, D., & McVay, M. (2006). Market Development in Practice Sector Development & Business Services Strategy-Experience of SEDF, Bangladesh. Dhaka: South Asian Enterprise Development Facility (SEDF). ACMA. (2007). Indian Automotive Component Industry -Engine of Growth Driving the Indian Manufacturing Sector. A presentation by the Indian Automotive Components Manufacturers Association. IRIS, University of Maryland. (2005). Report on Identification of Employment Oriented Export Services. Prepared for UNDP Bangladesh. Action For Enterprise. (2002). Review of Sub Sector Work in Bangladesh. Prepared by Action for Enterprise (AFE) for USAID Bangladesh.

6.

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8. 9.

10. Katalyst. (2006). Plastic Waste Recycling & Its Opportunities In Bangladesh. Available at http://www.katalystbd.com/downloads.php?catid=5. 11. Nerve News of India. (2007). Bangladeshi bikes go to Europe, but India rules at home. Published in The Nerve News of India on 13 November 2007. Available at http://www.nerve.in/news:253500114546. 12. Official website of Export Promotion Bureau Bangladesh. Available at http://www.epb.gov.bd/export_policy2003-06.html. 13. Plastindia. (2006). Indian Plastic Industry Review and Outlook. A presentation by the Plastindia Foundation.

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Heavy engineering- Ship Building

Heavy Engineering - Ship Building

The Global ship building industry is enjoying strong growth. All major ship building nations are running at or near full capacity to meet the demand for ships. There is an increasing ship delivery backlog as the demand has been outpacing supply. Prices for ships have risen sharply. Global ship building capacity is rising fast, and by 2013 is forecast to make three times as many ships as in 2004. China has been the most aggressive in increasing its capacity as it aims to be the worlds largest ship maker by the next decade. Bangladesh has recently become a player in the global ship building market, with two companies winning USD 250mn worth of orders. The two companies, Ananda Shipyards Limited and Western Marine Shipyards Limited have received orders for small ships that are expected to run up to 2010. Ananda Shipyard Limited is expanding their capacity and aims to be the leading ship builder in the country. Bangladesh has the most competitive labour rates amongst the existing and new ship building nations and technology is being adopted increasingly into the industry and its use will provide significant productivity gains for the future. Investment into technology and the modernization of the ship building infrastructure is key to ensuring competitive advantage in this sector.

Asian Tiger Capital Partners

Ahmad Sajid ahmad.sajid@at-capital.com

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Bangladesh is enjoying a boom in ship building. Driven by rising demand and a global supply shortage, existing players in the market have been able to capitalize on a global backlog in orders and sharp rises in prices. While investment in existing shipyards provides significant investment opportunities, investment in new yards may less compelling given two to three year lead times, a forecast fall in demand from 2011 and global dominance from China. However, leveraging its low cost base, adopting new technologies, coupled with government incentives and a strategic focus on areas such as small ships, Bangladesh could carve itself out a profitable niche.

Shipbuilding industry is experiencing rapid growth gloablly

The global shipbuilding shipbuilding industry has been on the rise since 2000. 2000 From 2001-2005, the industry grew at an annual compounded rate of 8.3%, compared to 2.8% over 1 the years from 1985 to 2005. Strong demand for ships has led to an increase of the 2 global backlog from 71.1mn tons in 2000 to158.97mn tons in 2005. Shipbuilding has been shifting to Asia The shipbuilding industry has been based in Europe and the USA historically, but has been moving to Korea, Japan, China, and various developing countries, seeking low cost building and the abundance of labor supply. The government of Vietnam has identified shipbuilding as one of the main priority sectors for the country and has made various facilities available. India, 3 Indonesia, Malaysia and countries from the Middle East have entered the market. Prospective new entrants to the market should be cautious as the market becomes saturated New shipyards in Korea and China will commence operations in the next 2-3 years nearly tripling capacity. In 2004 the world shipyard capacity was around 60mn dwt (dead weight tonnes) per annum, by 2013 it is forecast to be around 200mn dwt per year. By 2010 China aims to have 15 mega builders, 20 mid-sized builders and a number of small ship makers as well. Although the current ship building industry is ripe for investment in the near term, once a downward cycle begins - experts say this could be after 2011- supply and demand scenario will not be so rosy. In the past, ship builders from Korea and China have been known to sell 4 their ships at or even below capacity when down cycles have arrived.
Figure 1: Global share of ship building by region/country (figures in %)
Year EU Other European countries Japan South Korea China Other countries
Source: Ludwig & Tholen (2006)

Shipbuilding has been moving to lower cost locations

Strong demand, high prices expected to tail off in medium term

1995 18.9 4.2 41.7 27.8 3.3 4.1

2000 12.4 2.4 38.2 38.9 4.7 3.3

2004 8.3 3.5 36.1 36.8 11.6 3.7

2005 6.9 2.8 35.0 37.7 13.8 3.9

Traditional East Asian manufacturers see labour costs rise

Experts pointed out that ship building in East Asian countries has become costly due to high wages. The industry is gradually shifting towards developing countries mainly for availability of cheap labour force. Countries like Vietnam are now benefiting. Vietnam is now one of the main destinations of foreign ship buyers. All ship building plants in Vietnam have been booked until 2010. The ship building industry is also one of the main priority sectors of the government of Vietnam. Most recently, the government has made USD 750mn available for the 103

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sector to finance the development of a modern industry that can meet future international quality demands. The government has decided to make shipbuilding a key export industry through the Shipbuilding Industry development Program 20022010. It aims to export USD 5bn worth of ships by 2010 and extend the shipbuilding capacity to container ships of 1500 TEU, cargo ships of 100,000 tonnes, oil tanker of 100,000 tonnes and ship repairing of 400,000 tonnes. Vietnam aims to be the 5 fourth largest shipbuilder within the next decade. Bangladesh has two players in world world ship building - Ananda Shipyards Limited and Western Marine Limited. Limited Meghnaghat based Ananda Shipyards has signed agreements worth around USD 180mn and Chittagong based Western Marine has total orders worth more than USD 70mn. Ananda have signed deals worth around USD 100mn with two German shipping companies to build eight vessels with capacity for 325 containers by June 2010, and have recently signed deals worth USD 82mn. Ananda are planning to invest around BDT 1.10bn to set up two dry docks in their shipyard with a planned completion by early next year. Once in operation Ananda claims it take orders up to USD 500mn. Ananda has also set up a modern slipway on the river Karnaphuli, has also signed a letter of intent with two 6 foreign companies to construct 14 small vessels at a cost of around USD 150mn. The ship building industry in Bangladesh would benefit from government support Experts in Bangladesh have advocated the establishment of deep-draft ports, duty exemption for import of capital machinery, bonded warehouse facilities, special financial subsidy and providing green channel for importing raw materials to ensure healthy growth of the sector. India is provided 30% financial subsidy to aid its ship building industry, while Vietnam is providing 40% financial subsidy to its ship makers. Duty free import of steel against a bond system is especially relevant. The material would be used only for export purposes, and it would create scope for 6 export orders facilitating use of the countrys cheap labour force. Since ship building is a labour intensive industry, Bangladesh stands to gain from its highly competitive wage rates. Regional comparables show that, hourly minimum wage is 38 US cents in China, 45 cents in Vietnam, 39 cents in India, 35 cents in Pakistan and 27 cents in Sri Lanka. Bangladesh has lower wage rates that 7 is19 cent an hour. The ship building industry is rapidly modernizing, with increased use of technology and machinery greatly improving productivity. Bangladesh should also start improving its technology by incorporating computer aided design elements in its processes as low wage rates alone will not keep the country competitive forever.

Bangladesh joins the global ship building industry

Other countries benefit from subsidies

Bangladesh lower labour costs a key advantage

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Figure 2: Wages per m onth in 2002
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Japan South Korea Singapore China India Bangladesh

USD

Country

Source: Ludwig & Tholen (2006)

Conclusion With ship prices at an all time high and all major ship producing countries running at full capacity, Bangladesh stands to gain from joining the ship building industry. The two current Bangladeshi players today are expected to keep bringing in more business from around the globe over the next five years. To remain competitive, they also must incorporate technology and machinery into their businesses to have an edge. References References: ferences 1. Equitymaster.com. (2007). Global shipbuilding: An overview. Article published on February 15, 2007. Available at http://www.equitymaster.com/detail.asp?date=2/15/2007&story=1. 2. The Shipbuilders Association of Japan. (2005). Global Shipbuilding Industry: Status and Challenges. Paper presented at The IMF Shipbuilding Action Group meeting, November 14 16, 2005. Wu, D. (2007). Overview of Maritime Industry in Hubei Province, China. Available at www.maritimepartenariate.com/download/1266/x/Hubei%20Marine%20Indu sry%20Overview%20210307.ppt. Primary sources: interviews with an international shipbroker. Maritime Vietnam. (2007). Industry Market Outlook Shipbuilding, Ports and Logistics, February 25, 2007. Available at http://www.maritimeshows.com/vietnam/Vietnam_Country_Information270907.pdf. Financial Express. (2008). Bangladesh set to emerge as new shipbuilding hub. Article published in the Financial Express on February 5, 2008. Jackson, R. (2008). Wage rates Chinas rising costs make buyers think twice. Article published in Ethical Corporation Magazine on March10, 2008, Ludwig, T., & Tholen, J. (2006). Shipbuilding in China and its impacts on European shipbuilding industry. University of Bremen & Intitute of Law and labour Germany. 105

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AT Capital Research Tourism

Tourism
Tourism in Bangladesh provides a number of untapped opportunities relative to other comparables in the region. Bangladesh is home to Coxs Bazar, the longest natural unbroken beach strip in the world. In the Southwest region are the Sundarbans, the worlds largest natural mangrove forest. However, relatively few people globally are aware of the existence of these locations due to poor marketing and inadequate infrastructure. The countrys proximity to other key tourist spots such as India, Nepal, and Thailand may also provide an opportunity as a combination location with these countries. With a marketing push, Bangladesh could place itself as an alternative destination as tourists seek exotic locations. Consistent economic growth and development of export businesses such as ready-made garments have encouraged an increasing number of business-related trips from abroad. In order to cater to this growing demand, new luxury hotels, including two foreign chains since 2006, have entered the market. Given the relative immaturity of the market, there are significant areas for investment in an industry which could show substantial growth in the future.

Asian Tiger Capital Partners

S Adeeb Shams adeeb.shams@at-capital.com

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Figure 1: Regional Tourism Comparables International Tourist Country Arrivals (Thousands) 1990 2000 2004 Thailand 5,299 9,579 11,737 India 1,707 2,649 3,457 Sri Lanka 298 400 566 Nepal 255 464 385 Bangladesh 115 199 271
Source: World Tourism Organization (WTO), 20051

International Tourist Receipts (USD Millions) 1990 2000 2004 4,326 7,483 10,034 1,513 3,460 6,121 132 248 513 64 158 230 11 50 67

While tourism in Bangladesh has grown in recent years, the opportunities for investment in projects remain significant.
Proper marketing and promotion needed in top tourist locations

Coxs Bazar, Bazar, one of the countrys most popular tourist attractions, is the worlds longest sea beach stretching 120km. Although there has been some growth in terms of new accommodation over the past decade, development has focused on mid-quality hotel development. The beach area lacks international standard restaurants and facilities for recreation that would attract foreigners. The only luxury hotel in the region, the Seagull has some basic amenities, such as a swimming pool and a fitness center, but would not meet international expectations of a high end traveler and lacks provision for making reservations online. Some hotels in the Coxs Bazar area do have websites, although they lack professionalism and are rarely maintained/updated. Areas of interest apart from the main sea beach in Coxs Bazar are Inani, Maheskhali, St. Martins Island and Teknaf. There are some packaged tours currently available but are poorly promoted on international travel sites. Sundarbans, the worlds largest largest mangrove forest, forest, is spread across Bangladesh and West Bengal. It covers an area of approximately 6,000 square kilometers in Bangladesh. Inducted as a UNESCO World Heritage site in 1987, the Sundarbans is home to the Royal Bengal Tiger, spotted deer, crocodiles, snakes and a variety of different species of birds. Places of interest in the Sundarbans include Katka, Hiron Point, Dublar Char and Tiger Point. However, the situation is quite analogous to that of Coxs Bazar in that the physical infrastructure, in terms of tourist facilities, is inadequate and information on these areas is not readily available to tourists internationally. The Sundarbans present many prospects for Ecotourism provided there is some initiative from the private sector to introduce package tours to 2 visitors.

Good quality hotels are being introduced in Dhaka

Two new international luxury hotels, the Westin and Radisson Water Garden, have opened in Dhaka since 2006. For many years Dhaka was home to only two international luxury brand hotels, Pan Pacific Sonargaon and Dhaka Sheraton, both owned by the Government. In 2007, Radisson Water Garden Hotel generated revenue of USD 13.4 mn and an operating profit of USD6.7 mn, making it the most successful hotel in Bangladesh in its first full year of operations. Starwood Hotels and Resorts announced its decision to discontinue managing Dhaka Sheraton from 2009, by deciding against extending its current contract with Bangladesh Services Ltd (BSL). This was despite the Dhaka Sheraton making an operating profit of USD 3,4,5 4.2 mn in 2007. Starwood also operates the Westin Dhaka.

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International projects have been delayed. The construction of a Hilton at Maghbazar, along with an Intercontinental Hotel and a Holiday Inn adjacent to Zia International Airport, had begun in the past couple of years. However, these developments have been stalled. It is believed that BSL is currently in search of a 5 new international operator from 2009. A few other luxury hotels in the capital. Dhaka has some other luxury hotels, such as the recently opened Dhaka Regency, owned by three NRBs from the UK, Hotel Sarina in Banani, Best Western La Vinci in Kawran Bazar and Purbani in Motijheel. With the exception of La Vinci, all of the other hotels are very poorly marketed outside Bangladesh and have limited provisions for making online reservations. Chittagong is yet to have an international hotel. Hotel Agrabad had been Chittagongs premier hotel for many years. The Peninsula Chittagong, which opened in early 2006, is widely believed to be the best hotel in the port city at present, but is not of an international standard. The Thai Ambassador in March 2008 announced that Dusit Thani has plans to set up a property in Chittagong. Representatives of the Thai luxury hotel chain have already started discussions with the Bangladeshi Government in this regard. If successfully completed, this 6 would be the first foreign-managed hotel in the port city. Development Development of a Tourist Industry Tourism Master Plan. Plan. Bangladesh has suffered from poor planning, inadequate investment in infrastructure and a focused promotional programme. Bangladesh can learn about the development of Tourism activities from its neighboring countries. For example the Maldives, a small nation with a population of under half a million, has prepared three detailed tourism plans over the past few decades, the latest of which was published in 2005 containing a comprehensive outline of the Tourism industry. It has a thorough analysis of budgeting, existing finances, private sector contributions, development of existing facilities and services, human 7 resource development, environmental hazards, sales and promotion. Establish the country country as a transit location for Tourism. Tourism. Encouraging tourists to spend a few days in Bangladesh during a stopover trip to neighboring countries such as India, Nepal and Thailand might generate a positive response. Key to the success of such an initiative would be in the investment and refurbishment of Zia International Airport with complementary investment in supporting accommodation and leisure facilities in adjacent locations. Opportunities may arise from the recent introduction of local airliners, as a majority of these have plans of introducing international routes by the end of 2008. The recent Air Services Agreement signed between the Bangladeshi and Indian Governments, whereby there might be a maximum of 61 flights per week, to and from cities in either country, may provide 8 further opportunities. Rebranding Bangladesh Parjatan Corporation (BPC) and greater private sector participation. The Government earlier this month announced plans of rebranding BPC as the National Tourism Authority. Privatizing BPC has been on the Governments agenda for many years, although a firm plan has yet to be drawn up. Under private sector management, Parjatan could be more competitive with private 9,10 hotels.

What might be done to promote Tourism?

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There needs to be a concerted effort also from the private sector over the longer term. There are no notable tourism promotion organizations other than BPC. There are numerous agencies in other countries in the region such as Malaysia, Thailand and India. These organizations have contributed considerably towards the development of tourism in those countries, as they have been extensively marketed and promoted across the globe. Additionally, the introduction of booths at airports in Dhaka, Chittagong, Sylhet, along with the Benapole intersection bordering India. Extensive marketing in these areas will provide tourists with access to information that is presently not available in Bangladesh. Investment in infrastructure and state owned hotels. Public-private initiatives, investment in infrastructure, strengthening the existing highway network, particularly on the Dhaka-Chittagong and Dhaka-Sylhet routes is required complemented with setting up facilities such as food outlets and rest areas. To remain competitive, investment is required in the current state-owned establishments dedicated towards tourism, such as Pan Pacific Sonargon, Dhaka Sheraton, Parjatan properties and other tourist attractions. Better marketing of local hotels. otels. With the exception of foreign brands, local hotels are hardly found in the most popular travel sites on the Internet such as Expedia, Orbitz and Travelocity. Even though they might be better marketed within the country, the top local brands even in Dhaka, such as Sarina and Regency, have minimal global recognition. Need for more luxury hotels hotels outside Dhaka. Attracting and partnering with worldclass hotel brands in tourist areas such as Coxs Bazar and the Sundarbans is a viable option. The few luxury hotels that exist in the country are restricted to Dhaka. These hotels will target the rapidly growing upper-middle class population locally, as well as foreign tourists. Targeting the NonNon-Resident Bangladeshi (NRB) base in the US and the UK is an excellent opportunity for additional revenue from tourism. This would inevitably provide the NRBs a greater incentive of visiting their native land, in addition to visiting friends and family. Marketing holidays in areas in London and New York with high concentrations of NRBs, providing integrated packages where NRBs can visit relatives and also enjoy holiday breaks in, for example, Coxs Bazar and the Sunderbans, would be an attractive proposition to NRBs. Attracting an international hotel to Coxs Bazar will provide some much needed competition for the Seagull, the only luxury hotel in the area. For example, Berjaya Hotel & Resorts specifically specialize in setting up properties in beach areas and they presently have a reasonable presence in South East Asia. This hotel may cater to the growing middle-class population in Bangladesh. Setting up a higher end Shangri La, specifically targeting the higher-income group from Dhaka, foreign tourists including NRBs, provides a great opportunity in turning Coxs Bazar into a luxury destination.

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

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Education

AT Capital Research Education

The education sector accounts for 14.2% of total government expenditure in Bangladesh.

Asian Tiger Capital Partners

The education system in Bangladesh is characterized by the co-existence of three separate streams: a vernacular-based secular system, known as Bengali Medium, an Islam-based religious system known as Madrassa and an English-based system modeled after the British education system, using the same curriculum. Poor quality English-based education makes the market ripe for growth in this sector. Though many small private players are mushrooming in the primary, secondary and tertiary levels, the quality of education is variable. The acute shortage of both the number and quality of teachers at all levels highlights an investment opportunity for upgrading existing public and private teachers training institutes or establishing new ones. There is scope to drive country wide growth through

Scaling up large number of English medium primary and secondary educational institutes e.g. Scholastica, Sunbeams,etc. Investing in Indian Institute of Management (IIM) type business and management schools in Bangladesh that can produce global standard managers. Setting up Vocational Training Institutes (VTIs) linked to manpower export companies in the field of nursing, technical, teachers training, and English language which will introduce skilled workers for the Export Processing Zones (EPZs), local job market, and international market.

Syeda Tasnuva Akhter syeda.tasnuva@at-capital.com Masum A Rahman masum.rahman@at-capital.com

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Expenditure on education
Education is primarily funded by the Government with support from from development development partners and the private sector. However, Government expenditure on education in Bangladesh is currently the lowest in South Asia (2.3% of GNP, compared to a 1 3.5% regional average). From the outset, some have argued that the educational system needs better planning so as to improve the quality and relevance of the education and training offered. There are specific reasons for the poor quality of education at all levels:

The recruitment and placement process of teachers is not up to the mark. The absence of academic supervision hampers the academic environment in the schools resulting in poor performance of the teachers. Large scale private tuitions by the teachers at the primary and secondary levels have made classroom teaching-learning practically redundant for passing the exams. The main problem with technical education is the lack of linkage with employers and the job market. Employers complain that the training institutions do not develop or deliver the skills that employers require.

The way forward for the education sector

The way forward forward A summary of the structure of educational institutions can be found in the appendices. But we would suggest the following:

More emphasis should be given on technical and vocational education programmes at secondary/higher secondary levels and also at the university level to enlarge the technological skill base which will be an important foundation for economic development, The quality of science and English language education at secondary and higher secondary levels should be improved. The efficiency and standard of teachers should be improved through intensive training. The gap in educational facilities between urban and rural areas should be reduced. Suitable job-oriented subjects at the secondary level should be introduced to enable students to be self-employed. Private investments in the education sector should continue to focus on improving the quality and relevance of education through capacity-building, improving policies and the institutional environment.

Investment opportunities

The ineffectiveness of some areas of the current public and private education system in Bangladesh offers significant investment opportunities in this sector. These include:

Training institutions/colleges can be established so that the National University students can receive vocational training in various global trades (accounting and financial services, hotel management and tourism, graphic design, call centre, animation, IT, etc.). This will create opportunities for the students to enter in the local and international job market. Investment may be made in institutes and universities specializing in advanced technology, management, engineering and business for developing skilled workers required by emerging industries. Academic collaboration with 112

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leading foreign universities will enhance the academic and training standards of the students. English-medium residential schools may be established in every district to provide quality education to students living in district towns all over Bangladesh. This should prove to be a profitable investment opportunity since many people outside Dhaka are interested in educating their children in English-medium schools but do not have easy access. Customized vocational training programs can be designed for specific job descriptions of local and foreign employers. Investment in vocational training centres for paramedics, nurses, plumbers, electricians, drivers, car mechanics, gardeners, industrial workers including textile & RMG workers, cleaners, welders, etc. interested in working overseas (Malaysia, Korea, UAE, Saudi Arabia, Singapore etc.) can change the picture. Apart from technical training, these centres can provide relevant foreign language training including English which will facilitate the communication skills of the workers. Investment opportunities also exist in establishing teachers training institutes for school, college and university levels. With global standards, and examinations under international boards, Englishmedium schools have provided an alternative stream of education in Bangladesh to the state-run system.

English Medium schools: Regional Expansion Opportunities

The huge growth in the number of English Medium schools in the past decade is certainly one of the more encouraging trends in the private education sector. This trend can be expected to continue given:

The population growth with a higher %age of young children The rapid economic growth leading to greater disposable income and purchasing power to spend for childrens education. The growing popularity of the English Medium education system continues, especially among the urban middle and upper middle class, given their high international standards and increased prospects for gaining entry to overseas degrees.

Among the existing schools in Dhaka, Scholastica, Sunbeams, Sunnydale, South Breeze, Maple Leaf, Green Herald, Mastermind and Aga may be considered among the top ones in terms of performance of the students/popularity. The fee structures of these schools are also considerably higher than the other English medium schools as these schools tend to target the premium segment of the market. It is worth noting that 10,000 Bangladeshi children are studying at about 200 English medium schools in Darjiling, Shiliguri and Kurseong in India. This is because the admission fees, tuition and other expenses associated with English-medium schooling in Dhaka have gradually risen beyond the reach of many middle-class families. One of the better schools in Dhaka takes BDT 20,000 to BDT 30,000 as admission fees, BDT 10,000 to BDT 15,000 in annual fees and up to BDT 7,500 in monthly fees totaling to an annual fees of BDT 1,20,000. There is no uniform curriculum for English medium schools in Bangladesh. On the other hand, all English 3 medium schools in India follow the same curriculum prescribed by Delhi Board.

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We believe there are investment opportunities in setting up new English medium schools, in major cities in the provinces, which would make inroads into the huge untapped education market outside the capital. The strong selling point of these English medium schools will be international standard education which will be achieved by bringing in foreign trainers from the UK and US to train the teaching staff, establishing an academic collaboration and exchange program with foreign schools and providing boarding school facilities for students who are too far away from home. The Indian private equity firms are focusing more on the education firms these days targeting the domestic market. The talent shortage in the job market is compelling these firms in investing more in education sector. The requirement of talent is 200mn 4 over the following six years. As a result, the recent trend in investment is towards training in tutoring services, coaching centers and vocational skills although previously the focus was on export-oriented education.

Private equity investments in the Indian education sector

Education is emerging as a key investment sector for venture capitalists in India. There are a lot of local and international PE firms which have already invested or are trying to invest in India.
4,5,6,7 Case Study: Study: Private Equity Investments in Indian Education Sector

India-focused private equity firm GCP invested USD8.25 mn in education and career counseling entity Career Launcher. In 2007, Bangalore-based TutorVista, Education India Pvt. Ltd, Mumbai-based Hurix Systems Pvt. Ltd and 247 Learning Solutions Pvt. Ltd, have together received funding of more than USD 12mn. Helix investments invested USD 12mn into preparatory education company Mahesh Tutorials and SAIF partners, USD 10mn in English training academy Veta, plus an undisclosed sum in another vocational training company, ICA Infotech. Berggruen Holdings, a New-York based fund, plans to invest USD 300mn in India over the next three years, in training schools. Sequoia Capital India has invested in two e-learning companies-TutorVista and Brainvisa. Footprint Ventures, Novak Biddle Venture Partners, the ICICI Bank-supported IFMR Trust and industrialist Gautam Thapar are interested to invest in school education and assessment with Educational Initiatives Pvt Ltd (EI), an effort by a group of IIM alumni.

Conclusion Despite the proliferation of private schools and universities in recent years, there still remains a large investment opportunity in the education sector. Much has been written recently regarding the successes Bangladesh has experienced in increasing access to education. While these achievements should not be underestimated, it is imperative to recognize that there are still many challenges that must be met and wide range of investment needs to be made to enhance equity and access in the education sector.

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References 1. UNESCO. (2007). Secondary Education Regional Information Base: Country Profile Bangladesh. UNESCO Asia and Pacific Regional Bureau for Education, 2007, Bangkok. Ministry of Education. (2005). Education Statistics 2005. Available at the official website of Ministry of Education, Government of Bangladesh at http://www.moedu.gov.bd. 3. Sarker, R. (2004). Exodus for education to India. Article published in The Daily Star on December 1, 2004. The Economic Times. (2007). Talent crunch: PEs bet big on education sector. Article published in the Economic Times on November 15, 2007. India Today, December 26, 2007. India Private Equity. (2008). IIM-A alumnis EI gets venture funding. Article published in India Private Equity on March 7, 2008. Educational Initiatives. (2008). Learning assessment company gets venture capital funding. Available at http://www.ei-india.com/archives

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Appendices Appendix 1- Overview
Figure 1: Ease of doing business in Bangladesh Indicators of doing business with ease Doing business (average) Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business
Source: Doing Business 2008, World Bank

Rank in 2007 107 92 116 129 171 48 15 81 112 175 102

Rank in 2008 102 75 113 117 168 45 15 76 139 175 93

Change -5 -17 -3 -12 -3 -3 0 -5 27 0 -9

Figure 2: Launching a business in Bangladesh Bangladesh Procedures (number) Duration (days) Cost (% GNI per capita)
Source: Doing Business 2008, World Bank

Region 7.6 33.4 40.7

OECD 6 14.9 5.1

8 74 46.2

Figure 3: Ease of dealing with licences Indicator Procedures (number) Duration (days) Cost (% of income per capita)
Source: Doing Business 2008, World Bank

Bangladesh 14 252 751

Region 16.3 247.3 3,230.00

OECD 14 153.3 62.2

Figure 4: Difficulties faced in hiring and firing workers Indicator Bangladesh Difficulty of hiring index Rigidity of hours index Difficulty of firing index Rigidity of employment index Non-wage labour cost (% of salary) Firing costs (weeks of wages)
Source: Doing Business 2008, World Bank

Region 23.6 17.5 40 27 6.7 66

OECD 25.2 39.2 27.9 30.8 20.7 25.7

44 20 40 35 0 104

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Figure 5: Ease with which business can secure right of property Indicator Bangladesh Procedures (number) Duration (days) Cost (% of property value)
Source: Doing Business 2008, World Bank

Region 6.4 134.1 6

OECD 4.9 28 4.6

8 425 10.3

Figure 6: Ease of credit information sharing and legal rights of borrower and lender Indicator Bangladesh Region Legal rights index Credit information index Public registry coverage (% adults) Private bureau coverage (% adults)
Source: Doing Business 2008, World Bank

OECD 6.4 4.8 8.6 59.3

7 2 0.7 0

3.9 1.9 0.7 1.9

Figure 7: Dimension of protecting investors Indicator Disclosure Index Director Liability Index Shareholder Suits Index Investor Protection Index
Source: Doing Business 2008, World Bank

Bangladesh 6 7 7 6.7

Region 4.3 4.3 6.4 5

OECD 6.4 5.1 6.5 6

Figure 8: Cost and procedural ease with regards to trading across border Indicator Bangladesh Region Documents for export (number) 7 8.6 Time for export (days) Cost to export (US$ per container) Documents for import (number) Time for import (days) Cost to import (US$ per container)
Source: Doing Business 2008, World Bank

OECD 4.5 9.8 905 5 10.4 986.1

28 844 9 32 1,148.00

32.5 1,179.90 9.1 32.1 1,417.90

Figure 9: Ease or difficulty of enforcing commercial contacts Indicator Bangladesh Procedures (number) Duration (days) Cost (% of claim)
Source: Doing Business 2008, World Bank

Region 43.5 1,047.1 27.2

OECD 31.3 443.3 17.7

41.0 1,442.0 63.3

Figure 10: Time and cost required resolving bankruptcies Indicator Bangladesh Time (years) Cost (% of estate) Recovery rate (cents on the dollar)
Source: Doing Business 2008, World Bank

Region 5 6.5 20.1

OECD 1.3 7.5 74.1

4 8 23.2

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

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

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

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

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

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

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

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

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

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

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

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

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Appendix 2 - Energy

Source: Bangladesh Power Data Book 2006 by Power Cell

Source: Bangladesh Power Data Book 2006 by Power Cell

Figure 3: Coal reserves of Bangladesh Location Year of discovery 1985-87 1989-90 1997 1962 1994-95 Number of drilled wells 31 4 1 10 3 Depth (meter) 118-509 257-483 150-240 640-1158 328-407 Proven reserves (MT)*) 390 685 386 1053 N/A

Barapukuria Khalaspir, Rangpur Phulbari, Dinajpur Jamalganj, Joupurhat Dighipara, Dinajpur

Source: Power System Master Plan Update, Power Cell & Asian Development Bank

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Appendix 3 - Infrastructure (non(non-energy)

Source: Bangladesh Economic Review, 2007,

Figure 2: Revenue earnings and expense of Bangladesh Railway 900

Revenue Earnings & Expenditure (in crore BDT)

800 700 600 500 400 300 200

1995-96

Revenue Earnings

Revenue Expense

Source: Bangladesh Economic Review, 2007, Ministry of Finance

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07
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Fi gure - 3: Toll target and collection by Jamuna Multipurpose Bridge Authority 180 160

Target & Collection (in crore BDT)

140 120 100 80 60 40 Target Collection

1998 - 99

1999 - 00

2000 - 01

2001 - 02

2002 - 03

2003 - 04

2004 - 05

2005 - 06

Source: Bangladesh Economic Review, 2007

Case 1: Reform of Bangladesh Railway In Bangladesh, projects in the railway sector require more time and funds to bear fruit than do projects in the road and other sectors. For this and other reasons, the government of Bangladesh has scarcely made any new investments in railway development since independence in the 1970s. Consequently, virtually all railway facilities and equipment now in use were developed during the British colonial period (up to 1947). Indeed, they have become so old and decrepit that they are unable to fully capitalize on the railways inherent strengths massive, rapid, punctual, safe, and environment friendly resulting in reduced transportation volume, poorer service and a smaller role for the railway in the overall transport sector. In parallel with the robust GDP growth (56%) in recent years, demand for freight transportation has steadily increased by 56% annually in Bangladesh, showing particularly rapid growth in the demand for transport in the DhakaChittagong section, connecting Dhaka, the capital city and political and economic hub of the country, and Chittagong, the second largest city and industrial hub with the countrys largest seaport. Since 2001, the amount of cargo handled at the port of Chittagong has been increasing by more than 10% annually, but if the port facilities are expanded and enough private companies are attracted to the Export Processing Zone (EPZ), the demand for transport in the DhakaChittagong section can be expected to increase even further. Whereas the government has high expectations for the railway as an alternative mode of transportation to roads to play a leading role in meeting this increasing demand, it seems difficult, both in terms of transportation volume and quality of service, for the current railway facilities to meet such expectations, thus posing a bottleneck for the economic growth in the years ahead. Additionally, in order to achieve sustainable development that takes the environment into consideration, a modal shift from road transportation to environment friendly railway transportation is indispensable. (The railways CO2 emission per ton-kilometer is less than 1/8 of that of the automobile.) The government of Bangladesh is scheduled to formulate the Railway Development Plan, which will include the plan for implementing projects in the railway sector over the next 20 years. In addition, the government plans to take up sector reforms through organizational, administrative and institutional improvements of Bangladesh Railway (BR), and has formulated long-term planning and organizational realignment proposals (collectively designated as the BR Reform Program) with an eye to changing BR to a public corporation. World Bank, Asian Development Bank and Japan bank for International Cooperation are jointly funding the project. Source: Japan Bank for International Cooperation, http://www.jbic.go.jp/english/oec/before/2007/pdf/bangladesh02.pdf

2006 - 07

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Appendix 4 - Agriculture
Figure 1: Food grain production in Bangladesh (in 100,000 metric tonnes)
2000-01 Aus Aman Boro Total rice Wheat Maize Grand total 19.2 112.5 119.2 250.9 16.7 1.5 269.1 2001-02 18.1 107.3 127.6 243 16.1 1.5 260.6 2002-03 18.5 111.2 122.2 251.9 15.1 1.7 268.7 2003-04 18.3 115.2 128.4 261.9 12.5 2.4 276.8 2004-05 15 98.2 138.4 251.6 9.8 3.6 265 2005-06 17.5 108.2 139.8 265.5 7.4 5.2 278.1 2006-07 15.1 108.4 145.0* 268.5 7.4 8.5* 284.4

Source: Bangladesh Economic Review 2007

Figure 2: Export of selected agricultural commodities from Bangladesh from Fiscal Year (FY) 1990-91 to FY 2004-05 Fiscal Jute Fruits Vegetables Tea Year Thousand bales MT* BDT (mn) MT BDT (mn) MT BDT(mn) BDT (mn) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Total 1,360.0 1,394.0 1,513.0 1,003.3 1,682.0 1,570.7 2,351.0 1,739.0 1,748.0 1,738.0 1,500.0 1,283.0 1,995.6 1,878.4 2,268.6 3,670.0 3,250.0 3,510.0 1,896.0 3,180.0 2,968.0 4,442.2 3,188.5 3,442.0 3,588.0 3,621.0 3,509.5 4,774.6 4,698.8 5,916.4 613.0 457.0 0.0 0.0 0.0 0.0 0.0 60.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 36.3 27.2 1,475.3 8.0 0.0 0.0 0.0 3.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,550.4 2,675.0 0.0 0.0 0.0 0.0 0.0 0.0 7,412.9 13,106.0 1,027.3 9,509.3 12,751.4 9,792.0 16,143.8 29,100.0 101,517.7 295.9 427.9 431.2 438.3 0.0 0.0 0.0 820.7 848.2 701.2 689.2 879.1 766.6 1,456.3 2,665.4 10,420.0 26.5 23.6 33.1 36.9 27.2 25.9 28.5 57.1 22.7 12.9 17.8 13.9 10.4 12.3 11.1 359.9 1,523.6 1,230.8 1,597.0 1,781.1 1,313.0 1,254.0 1,380.0 2,760.0 1,850.0 886.2 1,163.2 998.0 895.9 932.1 974.5 20,539.4

Total BDT (mn) 5,525.8 4,935.9 7,013.5 4,123.4 4,493.0 4,222.0 5,822.2 6,772.8 6,140.2 5,175.4 5,473.4 5,386.6 6,437.1 7,087.2 9,556.3 88,164.8

25,024.6 1,130.5 55,655.0 Source: Ministry of Agriculture, Government of Bangladesh *MT=metric tonne

Figure 3: Production and import of chemical fertilizers by Bangladesh (in 1000 metric tonnes) Production Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Urea 1,883.0 1,545.4 2,056.7 1,986.2 1,878.3 1,730.3 TSP 67.7 65.6 65.2 67.0 53.8 56.4 SSP 119.3 136.4 135.4 141.0 162.5 135.1 NPKS 10.0 13.0 30.0 57.0 100.0 125.0 ASP 5.9 8.0 6.1 5.8 7.8 4.9 Gypsum 77.6 73.4 0.0 32.7 40.5 46.9 Total 2,163.5 1,841.7 2,293.4 2,289.7 2,242.9 2,098.6 Urea 302.0 522.4 285.7 235.0 567.3 770.3 TSP 363.0 340.9 327.6 359.0 451.4 373.9 Import MP 123.0 247.9 278.5 271.5 407.3 208.1 DAP 126.0 87.7 118.5 101.0 176.0 125.2 *Others 50.0 79.8 47.2 11.0 32.7 59.5 Total 964.0 1,278.6 1,057.4 977.5 1,634.7 1,537.0

Source: Ministry of Agriculture, Government of Bangladesh

*Others mean Gypsum, NPKS, and Zinc Note: TSP= Triple super phosphate; SSP= Single super phosphate; NPKS= composition; ASP= Ammonium sulphate; MP= Melamine phosphate; DAP= Diamonimum phosphate; NPKS= a composition of nitrogen, phosphate, potassium, and sulphur; MP= Melamine phosphate; DAP= diamonimum phosphate

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Figure 4: Employment (persons 15 years and over) by broad economic sectors from 1999 to 2000

Male mn Agriculture Non-agriculture Total 17.4 15.0 32.4 % 53.7 46.3 100.0 mn 15.2 4.2 19.4

Female % 78.3 21.2 100.0 mn 32.6 19.2 51.8

Total % 62.9 37.1 100.0

Source: Bangladesh Bureau of Statistics: Labour Force Survey Bangladesh 1999-2000, August 2002

Appendix 5 - Textiles
Figure 1: Ready Made Garment (RMG) exports (in USD mn) in 2006 and 2007 Woven Knit Annual growth rate 2007 (%) 330.4 -6.7 415.3 391.8 308.8 368.4 474.7 345.2 417.0 353.7 314.6 417.1 471.1 4,608.4 17.9 12.1 5.2 -5.8 8.6 -23.6 -9.7 0.5 1.1 26.3 2.5 1.4 Annual growth gate 2007 (%) 275.0 -7.3 343.1 355.1 325.9 406.1 486.5 346.8 445.0 412.5 387.3 442.1 516.6 4,741.9 21.3 12.9 0.9 4.8 15.5 -23.4 -0.4 18.2 10.1 40.4 15.5 8.1

Total (Woven+Knit) Annual growth rate 2007 (%) 605.4 -6.9 758.5 746.9 634.7 774.5 961.2 691.9 862.0 766.2 701.9 859.2 987.7 9,350.3 19.4 12.5 3.0 -0.5 11.9 -23.5 -5.1 9.3 5.9 33.2 8.9 4.7

Month January February March April May June July August September October November December Total

2006 354.2 352.4 349.7 293.4 391.0 437.1 451.9 461.9 351.9 311.4 330.3 459.7 4,544.8

2006 296.7 282.9 314.3 322.9 387.7 421.4 452.9 446.9 349.0 351.7 315.0 447.2 4,388.7

2006 650.8 635.3 663.9 616.4 778.7 858.5 904.9 908.8 700.9 663.1 645.3 906.9 8,933.5

Source: Export Promotion Bureau, compiled by BGMEA

Figure 2: Main apparel items exported from Bangladesh (Figures in USD) Fiscal Year 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 Shirts 1,073.6 871.2 1,019.9 1,116.6 1,053.3 1,056.7 943.4 Trousers 656.3 636.6 643.7 1,334.9 1,667.7 2,165.3 2,201.3 Jackets 573.7 412.3 464.5 364.8 430.3 389.5 1,005.1 T-Shirt 597.4 546.3 642.6 1,062.1 1,349.7 1,781.5 2,208.9 Sweater 476.9 517.8 578.4 616.3 893.1 1,044.0 1,248.1 Total 3,378.0 2,984.3 3,349.0 4,494.6 5,394.2 6,437.0 7,606.8

Source: Export Promotion Bureau, compiled by BGMEA

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Figure: 3 Structure of Bangladeshs Primary Textile Sector (PTS)
Sub-Sector Spinning Mills: Cotton yarn mills Synthetic yarn mills Silk yarn mills Total Spinning Mills Weaving and Knitting Mills: Weaving mills (grey fabric) Specialized textiles & power loom mills Handloom mills Knitting, knit dyeing mills Total Weaving and Knitting Mills Total Dyeing and Finishing Mills
Source: Adapted from BTMA Annual Report 2007

No of Mills 311 11 1 322 400 1,066

Installed Capacity 6,250,000 Spindles NA 2,888 Reeling NA 25,000 Looms 23,000 Looms

Production Capacity 1,040mn Kg 50mn Kg 0.06mn Kg 1,090.1m Kg 1,400mn meters 300mn meters 837mn meters 4,100mn meters 6,637mn meters 1,720mn meters

148,342 498,000 handlooms 17,000 Knit/Dye Machines 2,800 152,608 310 NA

Figure 4: Comparative growth between spindle capacity and growth in RMG Fiscal Year Growth in spindle capacity (%) Growth in total RMG exports (%) 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07
Source: BTMA Annual Report 2007, page 27

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

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Appendix 6 - Manpower
Figure 1: Estimated size of remittances market in Bangladesh 2006 Bangladesh Remittance Figure (USD bn) Average Transaction Size (USD) Transaction Volume (mn) Average Price per Transaction (USD) Average foreign exchange (FX) spread Transaction Revenue (USD mn) FX Revenue (USD mn) Total System Revenue (USD mn) 4.8 200 24 10 1% 240 48 288 2015 30 400 75 10 1% 750 300 1,050

Source: Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). Making Bangladesh a Leading Manpower Exporter: Chasing a Dream of US$ 30 billion Annual Migrant Remittances by 2015.

Figure 2: Different categories of Bangladeshi migrant workers Years Professional Skilled Semi-skilled 1976-1985 1986-1995 1996-2004 6.34% 4.72% 3.90% 34.76% 32.12% 32.01% 7.35% 20.18% 15.19%

Unskilled 51.54% 42.97% 48.88%

Source: Bureau of Manpower, Employment and Training

Figure 3: Overseas Employment by Profession Worker's Category 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
Source: Bureau of Manpower, Employment and Training

Un-skilled 89,229 109,536 118,511 131,785 116,741 85,950 109,581 118,516 134,562 122,252

Figure 4: The demographic implosion in developing world (mn) Population Estimated population in in 1999 2050 Japan Italy Ukraine Spain Germany Rumania Bulgaria Hungary Poland
Source: UNDP, 2000

Absolute population loss, 1999-2050 -21.6 -16.1 -11.3 -9.4 -8.8 -6.0 -2.5 -2.6 -2.4

126.5 57.3 50.6 39.6 82.1 22.4 8.2 10.1 38.7

104.9 41.2 39.3 30.2 73.3 16.4 5.7 7.5 36.3

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Figure 5: Sources of Remittances to Bangladesh (in USD mn) Country Saudi Arabia U.S.A U.A.E Kuwait U.K Qatar Oman Others Bahrain Singapore Italy Malaysia Germany Japan Hong Kong S. Korea Australia Iran Libya Total 1995 485.9 104.4 78.0 165.2 39.8 68.6 82.5 34.4 32.9 3.8 0.0 71.6 6.3 27.7 0.0 0.0 0.0 0.2 0.3 1,201.5 2000 933.0 248.2 143.2 246.5 68.9 61.2 87.1 47.9 42.8 10.5 0.0 45.6 3.9 16.1 0.0 0.0 0.0 0.0 0.1 1,955.0 2001 980.9 265.0 186.9 254.8 63.9 76.7 90.6 46.6 49.2 8.2 0.0 31.9 4.8 11.6 0.0 0.0 0.0 0.0 0.0 2,071.0 2002 1,244.5 423.5 276.5 322.4 170.8 103.4 110.8 30.6 57.6 25.3 4.9 49.1 7.9 15.1 2.3 1.3 1.8 0.1 0.1 2,847.8 2003 1,313.0 470.1 349.3 338.5 234.8 110.2 114.3 83.6 64.0 28.9 5.9 33.5 8.7 18.8 1.3 1.0 1.2 0.3 0.1 3,177.6 35.4 12.6 19.2 0.0 0.0 0.0 0.4 0.2 3,561.4 2004 1,463.3 477.6 390.5 380.4 342.6 125.3 123.3 92.7 62.6 35.3 2005 1,609.3 673.7 496.5 445.3 404.1 153.3 147.4 108.0 70.2 56.0 25.2 22.4 11.1 10.8 6.7 4.8 4.2 0.9 0.2 4,249.9

Source: Bureau of Manpower, Employment and Training

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Appendix 7 - Pharmaceuticals
Figure 1. World market by geographic region - 2007 Value (USD bn) USA Europe France Germany UK Italy Japan Asia Pacific Latin America Middle East, Africa Canada Total
Source: GlaxoSmithKline Annual Report, 2007

Annual growth % of total 44 28 5 5 3 3 10 7 5 3 3 100 (%) 9 6 4 3 3 7 -3 14 21 13 19 8

288 185 35 33 21 21 62 46 32 22 17 652

Figure 2: Top 10 manufacturers in Bangladesh by sales - 2007 Sales (USD mn) Square Beximco Incepta Acme Eskayef Drug INT. Aristopharma sanofi-aventis A.C.I. Renata Total
Source: IMS Report, 4 Quarter 2007
th

Share (%) 18 9.2 7.4 5.4 4.5 3.9 3.9 3.8 3.8 3.6 63.5

106 54 44 32 27 23 23 22 22 21 374

Figure 3: Top 10 Therapeutic segments in Bangladesh by sales - 2007 Sales ( USD mn) Alimentary T.& Metabolism Systemic Anti-Infectives Nervous System Respiratory System Musculo-Skeletal System Dermatologicals G.U.System & Sex Hormones Hospital Solutions Blood + B.Forming Organs Parasitology Total
Source: IMS Report, 4 Quarter 2007
th

Share (%) 32 24.9 8.9 7.9 5.2 2.5 2.1 2.1 2 1.9 100

Growth (%) 20.4 5.4 17.4 20.8 14.9 21.9 19.4 7.4 13.5 13.6 15.8

189 147 53 47 31 15 12 12 12 11 591

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Figure 4: Top 14 molecules in Bangladesh by sales 2007 Yearly sales (USD mn) 32 31 21 18 16 15 13 12 11 11 9 8 8 7

Omeprazole Ranitidine Ciprofloxacin Cefradine Amoxicillin Paracetamol Cefixime Ceftriaxone Diclofenac Azithromycin Amlodipine Salbutamol Cefuroxime Axetil Pantoprazole
Source: IMS Report, 4th Quarter 2007

Figure 5: Major API manufacturers in Bangladesh and their products 2007 Company Beximco Pharmaceuticals Ltd. List of API Products Amlodipine, Amoxycillin, Ampicillin, Celecocib, Rofecoxib, Paracetamol, Diclofenac, Cloxazillin, Flucloxacillin, Cetirizine Fluconazole, Ciprofloxazin, Ranitidine, Cephalexin Amoxycillin, Paracetamol, Diclofenac, Cloxazillin, Flucloxacillin, Cephalexin Amoxycillin, Diclofenac, Cloxacillin, Flucloxacillin, Cephalexin Amoxycillin, Diclofenac, Cloxacillin, Flucloxacillin, Cephalexin Amoxycillin, Paracetamol, Diclofenac, Cloxazillin, Flucloxacillin, Cephalexin Paracetamol Amoxycillin, Paracetamol, Diclofenac

Square Pharmaceuticals Ltd. Drug International Ltd. Globe Pharmaceuticals Ltd. Gonoshashtaya Pharmaceuticals Ltd. Sunipun Pharmaceuticals Ltd. Opsonin Chemicals Ltd.

Source: GTZ. (2007). 'Study on the Viability of High Quality Drugs Manufacturing in Bangladesh.' Federal Ministry of Economic Cooperation and Development
Source: GTZ. (2007). 'Study on the Viability of High Quality Drugs Manufacturing in Bangladesh.' Federal Ministry of Economic Cooperation and Development

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Appendix 8 - Healthcare

Figure 1: Total expenditure on health as a % of GDP in 2004 8% 7% 6% 5% 4% 3% 2% 1% 0%

Bangladesh Maldives Thailand Sri Lanka India Nepal Myanmar Indonesia North Korea

Source: Official website of World Health Organization

Figure 2: Per capita expenditure on health in 2004 500 400 300

USD
200 100 0
Source: Official website of World Health Organization

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Figure 3: Use of different methods of treatment in Bangladesh in 2005 Different Methods Pharmacy/dispensary/compounder Private doctor Govt. doctor (private practice) Govt. doctor (Govt. institution) Homeopathic doctor Kabiraj/hekim/ayurbed Govt. health worker Family treatment Self treatment NGO doctor NGO health worker Peer/fakir/tantric/ojha/baidya Others Total
Source: Bangladesh Bureau of Statistics

% 38.7 24.4 15.1 7.6 4.7 1.4 1.1 0.7 0.5 0.5 0.3 0.2 5.0 100.0

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Appendix 9 - Biotechnology
Figure 1: Indian Biotech segments Types Bio-IT Bio Agro Bio Industrial Bio Service Bio Pharma Total
Source: www.ibef.org

% 2.1 7 6.7 9 75.2 100

Case 1: Major Multinational Biotechnology players in India The Indian Biospace is dotted with a growing number of Multinationals like Eli Lilly, Novo Nordisk, AstaZeneca, Baxter, and Roche.

Opportunities in the agro-biotech sector have also brought in worlds major biotech companies into India. For instance, Maharashtra Hybrid Seeds Corporation (Mahyco) Ltd and Monsanto India have formed a 50:50 joint venture called Mahyco Monsanto Biotech (India) Ltd (MMBL) to market Bollgard cotton, developed by Monsanto. Some of the other leading MNCs present in Indias bio-agri segment are Advanta, Indo American Hybrid Seeds and Syngenta. The clinical research is another field, wherein international companies like Quintiles Transnational have actively proceeded to leverage the India advantage. The other international CRO and bioservices companies operating in India include Covance, Parexel, ClinTec, Clinworld, MWG, Neeman Medical International, RCC, Simbec and Pharmanet.

Appendix 10 - Heavy Engineering (Shipbuilding)

Figure 1: Growth of world s hipbuilding capacities f rom 2004 t o 2010 50
Cumulative Gross Tonnage (mn)

45 40 35 30 25 20 15 10 5 0
Japan South Korea

2004

2010

China

Europe

Others

World
industry. University of Bremen &

Source: Ludwig, T. & Tholen, J. (2006). Shipbuilding in China and its impacts on European shipbuilding Institute of Law and labour Germany.

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Appendix 11 - Education
Figure 1: Bangladesh educational institutes Type of Management No. of Institutions Institution Primary Public Private Total Secondary Public Private Total College Public Private Total Madrasa Public Private Total University Public Private Total Technicalvocational Professional Public Private Total Public Private Total Teacher Training Public Private Total 37,672 42,725 80,397 317 18,183 18,500 261 2,899 3,160 3 9,211 9,215 26 56 82 180 2,548 2,728 60 162 222 80 108 188 162,084 182,705 344,789 7,434 225,495 232,929 11,274 79,439 90,713 82 151,885 151,967 6,852 3,487 10,339 2,939 15,246 18,185 1,629 2,529 4,158 917 1,215 2,132 9,483,891 6,741,767 16,225,658 221,887 7,176,665 7,398,552 511,869 858,109 597,688 2,738 3,450,483 3,453,221 115,929 91,648 207,577 48,976 192,360 241,336 17,526 42,517 60,043 21,893 14,372 36,265

No. of Teachers

No. of Students

Source: Education Statistics 2005, Ministry of Education, Government of Bangladesh Note: Teacher and Students of National University and Open University are not included in Public Universities.

23 new Polytechnic Institutes excluded above have already been established but are yet to open.

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Figure 2: Number of public and private technical-vocational institutes 2005 Type of institution Management No. of Institutions Polytechnic Institutes Technical School & Colleges Institute of Glass & Ceramic Institute of Graphics Arts Textile Institutes Textile Vocational Centers Technical Training Centers Survey Institutes SSC (Vocational) Schools HSC (Business Management) Institutes Commercial Institutes Agricultural Training Institutes Public Private Public Public Public Public Public Public Public Private Private Public Public 37 97 64 1 1 6 28 13 2 1,224 1,180 16 12 No. of Teachers 1,189 465 792 10 16 45 331 359 17 7,511 6,120 68 112 No. of Students 17,836 9,682 8,548 174 255 856 5,097 4,867 557 95,458 79,935 3,683 7,103

Source: Education Statistics 2005, Ministry of Education, Government of Bangladesh

Figure 3: Number of public and private professional college 2005 Management No. of Institution Type of institution Medical Colleges Public 15 Private 27 Dental Colleges Public 1 Private 8 Nursing College Public 1 Homeopathic Colleges Unani/ Ayurvedic Colleges Nursing Training Institutes Textile College Leather Technology College Law Colleges Art Colleges Music Colleges Public Private Public Private Public Private Public Public Private Private Private 1 29 2 14 39 5 1 1 70 7 2

No. of Teachers 1,218 1,037 56 198 18 27 442 32 124 232 29 31 15 625 54 20

No. of Student 11,731 6,954 358 782 252 486 14,684 312 1,288 3,324 515 628 435 17,787 407 120

Source: Education Statistics 2005, Ministry of Education, Government of Bangladesh

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The AT Capital Team
Ifty Islam Syeed Khan Zarif Munir Mir Firoz Ahmad, Ph.D. Junaid Khan Shahidul Islam, CFA Saif Noman Khan Mohammad Hanif Mohammad Emran Hasan Syeda Tasnuva Akhter Ahmad Sajid Abdullah Ibneyy Shahid S Adeeb Shams A. M. A. Bari Nahid Abdullah-Al-Farooq Masum Abdullah Rahman Tami Zakaria Sanwar Ahmed Tasmiah T. Rahman Ashek Ishtiak Haq Minul Islam Rasidul Hasan Syed Najibullah Md. Zahidur Rahman Managing Partner Partner Senior Advisor Senior Investment Advisor Investment Advisor Investment Manager Investment Advisor Research Research Research Research Research Research Research Associate Associate Associate Associate Associate Associate Associate Analyst Analyst Analyst Analyst (880)-1730058920 (880)-1730058921 +13124044252 (US) (880)-1714134552 (880)-1715563100 (880)-1713032155 (880)-1715058104 (880)-1715244932 (880)-1730058929 (880)-1730058930 (880)-1730058927 (880)-1730058926 (880)-1713452242 (880)-1715954318 (880)-1730058933 (880)-1730058935 (880)-1730058936 (880)-1730058943 (880)-1713486688 (880)-1720594959 (880)-1911116930 (880)-1712532644 (880)-1718310778 (880)-1730058937 ifty.islam@at-capital.com syeed.khan@at-capital.com zarif.munir@at-capital.com firoz.ahmad@at-capital.com junaid.khan@at-capital.com shahid.islam@at-capital.com saif.noman@at-capital.com mohammad.hanif@at-capital.com emran.hasan@at-capital.com syeda.tasnuva@at-capital.com ahmad.sajid@at-capital.com abdullah.shahid@at-capital.com adeeb.shams@at-capital.com nahid.bari@at-capital.com abdullah.farooq@at-capital.com masum.rahman@at-capital.com tami.zakaria@at-capital.com sanwar.ahmed@at-capital.com tasmiah.rahman@at-capital.com ashek.haq@at-capital.com minul.islam@at-capital.com rasidul.hasan@at-capital.com syed.najibullah@at-capital.com zahidur.rahman@at-capital.com

Research Research Research Research Research Research Research Research Research

Assistant Assistant Assistant Assistant Assistant

IT Analyst

Copyright 2008. Asian Tigers Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka 1215, Dhaka, Bangladesh. All rights reserved. When quoting please cite AT Capital Research. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Asian Tigers Capital Partners Limited. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

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