BD in Asia

Can Bangladesh be the Next Asian Tiger?
DCCI 50th A i Anniversary Conference, N C f November 1 2008 b 1, Ifty Islam, Managing Partner, Asian Tiger Capital Partners
+8801715840112, ifty.islam@at-capital.com
www.at-capital.com
Key Themes
The Macro Case for Bangladesh to become the next Asian Tiger The implications of 2008 Financial Crisis on BD and EM Still the Asian Century? Greater integration with the rest of Asia: one of the great untapped opportunities A strategy for more effective regional integration Regional and global FDI trends and implications for BD Review of SAARC and Bangladeshs success in regional trade Better India-Bangladesh relations the missing link for effective regional integration India Bangladesh Bangladesh sector strategies Regional infrastructure opportunities R i li f t t t iti
Asian Tiger Capital Partners, Level 16, UTC Tower, Panthapath, Dhaka-1215, Tel: +880-2-9114286 Web: www.at-capital.com
The Bangladesh Paradox

The Bangladesh paradox has been one of surprising economic resilience in the face of natural disasters poor governance and political volatility Even if growth disasters, volatility. 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. ( (Bangladesh: G Growth, Investment, O Opportunity, AT C Capital Research, April 17, 2008) Bangladesh has three key attractions for global investors and multinationals: - A large base of low-cost labour -Al large d domestic market of 150 ti k t f 150mn people, and l d - Nearly 3bn people in the Asian region that it has market access to
Bangladesh Macro Opportunities and Strategy

Macro Opportunities 1. 2. 3. 4. 5. More effective development of Brand Bangladesh to attract FDI/portfolio flows Greater regional integration - Can Bangladesh become the India+1 market? Adopting global best practice and diversifying exports Favorable demographics Leveraging the 4mn+ Bangladeshi diaspora beyond remittance flows
Key Growth Enablers 1. 2. 3. 4. 5. Better infrastructure - Overcoming power crisis and transport bottlenecks Education and skills training g Public sector reform Improved corporate and political governance Capital markets growth
Why Bangladesh, Why Now

Growth despite volatility, opportunities exceeding capital
Poised for exponential growth

~6% GDP growth historically Despite politics, weather, infrastructure, transaction costs Driven by sound fundamentals fast growth industrial base, large pop. ( (~150M), increasing income levels, ) g under-served consumer needs Strong case for continued optimism Uncorrelated market risk Adjacency to India and China o abo a et Low cost labor market Strong public market growth Global quality local chaebols hungry for growth Singular focus on enabling growth EPZ, foreign ownership, Brand Bangladesh initiative Increased NRB reverse brain drain
International interest growing

Already on the global radar JP Morgan - Frontier 51 Goldman Sachs Next 112 CNBC g g International investing has begun... Grameen-phone BRAC securitization IFC, IPDC, Sabinco development agencies with international capital te at o a u ds s t g/ oo g International PE funds visiting/looking for BD opportunities... New Silk Route Aureos Noor Financial Capital International Abraaj DEG United Overseas Bank CDC Kim Eng
Growth opportunities everywhere

Capital market maturation Commercial banking consolidation 10x growth in power Doubling down on Infrastructure Upgrades in agriculture Pharma - taking advantage of TRIPs Harnessing the up-skilled labor pool Introducing medical tourism Lower cost off-shoring destination Spreading education in-country
1. 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 2. Countries that could potentially have a BRIC-like impact in rivaling the G7... large population countries including Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.
Bangladesh Strategic Location at the Heart of Chindia
The Asian Century
Why Emerging Markets Matter
Chindia History and Potential
A Strategy for Regional Integration

We would outline 5 mains areas for developing Bangladeshs economic and commercial opportunities with the rest of Asia:
1. 1 2. 3. 4. 5.
Asia A i as a source of FDI and portfolio capital f d tf li it l Increasing intra-regional trade Low cost manufacturing hub Regional infrastructure strategy Economic lessons from Asias economic success stories
Regional Integration and FDI
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The Importance of FDI: A Capital Constrained Economy?

Limited financing options, FX restrictions to grow internationally, family transition
Financing Options Limit Growth
Institutional risk capital very limited Extremely limited professional equity investment access for companies Venture or PE very new concept Debt financing prevalent but with g significant constraints Cost of debt prohibitive Lending asset based rather than cash flow driven Long term financing not available locally Lack of bond market Practically impossible to finance large projects. See chart. Hungry for growth capital Equity growth finance to unlock significant growth opportunities
FX Constraints
FX convertibility a real issue BD has capital convertibility restrictions Companies unable to undertake international expansion strategies Developing international offices/branches impossible M&A and value chain integration not possible PE fund with FX investments p y Allows companys to undertake international strategies Participate in international M&A opportunities
Largest Loan Syndications in Bangladesh
Borrower TM International (Aktel) Warid Telecom Shung Shing Power Orascom Bangladesh (Banglalink) Pacific B P ifi Bangladesh T l l d h Telecom (Cit (Citycell) ll) GrameenPhone Amount in USD Milliion 44 44 41 35 31 29 Tenor (Years) 6.0 6.0 6.0 5.0 5.8 5.0
Family Transition
Intergenerational shifts Transfer to children/split shareholders raises management challenges Future owners with differing outlooks Generational sophistication and vision Next generation have a more global view of opportunity set Sophisticated strategic vision to expand Value rated more highly than control gy p Increasingly open to PE investors We provide an opportunity for them to achieve their vision A facilitator for the corporatization of their businesses
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Asia as a Source of FDI and Portfolio Capital
How can Bangladesh benefit from the massive reserve growth in the region? Asian central banks have, along with the oil surplus countries, been the fastest accumulators of FX reserves in recent years. China has more than $ 1.5 tr, Japan more than $ 1tr and Korea, Taiwan, Singapore and India in excess of $ 300bn, each. In addition, Asian countries have very high savings rates and in the case of Japan, excess funds in domestic pensions. In the case of Indian multinational, an aggressive outward FDI strategy. How does Bangladesh position itself to capture a greater proportion of these flows?
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EM Countries Have Seen Rising FX Reserves/Capital Flows
Net Private Capital Flows to Emerging Economies billions of U.S. dollars percent of GDP
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EM Economies Benefiting from FDI

RDE FDI Trends
Another indication of the increasing prominence of Rapidly Developing Economies (RDEs) in the global economy is the level of foreign direct investment they receive. Across the 14 RDEs that are home to the BCG 100, this investment surged at a compound annual growth rate (CAGR) of almost 23 percent from 2004 through 2006, to reach $245 billion. In 2006 alone, the rate of growth was even higher, at 25 percent. Many RDEs are also developing closer economic ties with one another. For example, trade between China and India grew 38 percent in 2006. The mix of goods traded also shifted to include an increasing share of high valued added offerings high-valued-added offerings, such as telecommunications products and IT services.
Source: BCG
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Bangladesh Should be Focusing on Attracting the BCG100
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BCG100 have Aggressively Acquired EM Companies
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Sectors with near term investment opportunities

Manufacturing/Export
Established global competitiveness in labor intensive sectors RMG Opportunities to expand volume production as businesses have been starved of growth capital Opportunities to invest in capital intensive backward linked industries textiles Opportunities to invest in valued added production capabilities valued added, high end items Leading pharma manufacturing capability out of LDCs Pharma cos starting to obtain international compliance looking to expand export business Many looking for investment in accredited manufacturing plant
Consumer/Domestic
Growing domestic demand Increasing disposable income Consumer habits are changing Local retail groups seeking expansion capital as organised retail grows Leisure sector remains relatively undeveloped, although some successful operators looking to develop chains Buying habits changing g products food processing p g Agro p consumers increasingly buying processed foods and farmed products Export potential TMT opportunities WIMAX licensing regulations Value added services
Financial Services
Retail Penetration low but growing fast Private Banks profits growing 50%+ year on year Banks looking to develop consumer businesses Potential privatization of some state owned banks and industrial lenders Insurance profits growing year on year Insurance company sophistication still at a nascent stage Product offering undeveloped pp y Value added investment opportunity
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Bangladesh and Regional Trade Opportunities
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Increasing Regional Trade

One of the key macro opportunities for Bangladesh is increasing intra-regional trade and moving away from a reliance on EU and US export markets. While Bangladesh has become a stronger economy when defined by the rising share of exports+imports as a % of GDP, the standout feature is just how little of the countrys exports goes to Asia - SAARC 3% versus 55% to the EU and 28% to NAFTA countries. Why has the SAARC and SAFTA efforts not been more successful? What needs to be done? The chart on the next page shows the openness of economies in Asia on the basis of exports and imports as a percentage of GDP. Clearly Bangladesh is far less dependent on exports than a number of other economies in the region - Malaysia and Vietnam stand out as being b i especially vulnerable t th global d i ll l bl to the l b l downturn. t The contrast between China and India, with the former being much more open, is also noteworthy. Bangladesh has a comparable level of openness to India but significantly less y g p p g y than China.
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BD Increasingly Open Economy but Asia Share Low

Import+Exportasa%ofGDP
Othercountries Oth ti OPEC 1% 2% ASEAN SAARC 1% AsianClearing 3% Union(ACU) 4% OIC 6%
Import+Exportasa%ofGD DP
Export Receipts by Blocs
180% 160% 140% 120% 100% 80% 60% 40% 20% 0%
EU 55% NAFTA 28%
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Trade Diversification Key

Export by commodities
To boost the competitiveness of existing industries, the focus needs to be on policy reform and institutional change, enhanced productivity and scale economies in production, and higher investments in infrastructure. Diversifying exports requires an improved business climate, adequate incentives for entrepreneurship development, and efficient appraisal of foreign direct investment (FDI) proposals proposals. The ADB noted in their June 2008 Quarterly Economic Update for Bangladesh that: Bangladesh has significant potential in several exportoriented i d t i i t d industries, i l di including pharmaceuticals, l th h ti l leather goods, frozen foods, shipbuilding, and information technology-enabled services (ITES).
Fish, shrimps and prawns
1% 0% 2%
Jute manufactures 0% 10% 4% 4% 3% Leather and leather manufactures Readymade garments
Raw jute
Tea
Furnace oil, naphtha and bitumen 76% Handicraft
Others
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Demographic Trends and Bangladesh
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Population Growth set to Increase Dramatically

6 Billion People-Tipping Point The UN Population report in 2007 forecast that the world population the will likely increase by 2.5bn over the next 43 years from 6.7bn to 9.2bn by 2050This is equivalent to the total world population in 1950 and it will be absorbed mostly by the less developed regions, whose population is projected to rise from 5 b 5.4bn in 2007 to 7.9bn in 2050. (UN 00 9b 050 (U Population division 2007) While the total world population will increase by 1bn in the next 12 y y years, , the worlds middle class will rise by 1.8bn (Moses Naim, Foreign Policy, 2008).
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Bangladesh has one of the Fastest Growing Youth Population
With the e cept o of Pakistan Bangladesh has fastest t t e exception o a sta a g ades as astest growing youth in Asia
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Bangladesh Benefits from Favourable Demographics
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Better Bangladesh-India Relations Remain Key
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NE Indian States Underdeveloped- Bangladesh Trade Key

Has a regions share in Indias overall economy, measured by growth variables aggregated into an index, increased or decreased in the post1991 period? The accompanying map is based on some work that Bibek Debroy and Laveesh Bhandari have done, using NSS (National Sample Survey) data on regions. This provides some answer as to what has been happening at the intra State level The time frame is the 1990s beginning with intra-State level. time-frame 1990s, 1991-92. The broad regional picture is shown in the map. Blue shades indicate regions that have increased their economic share over time, the darker the shade of blue, the better. Red shades indicate regions that have , g declining economic shares over time, the darker the shade of red, the worse off the region is. This is, in that sense, a relative rather than an absolute map. The relative deprivation in Jammu & Kashmir, the Centre, the East and the North-East is obvious Enhancing trade between Bangladesh and the NE states of India will be of strategic and political importance to both countries
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Little of Indias Surging FDI goes to the Rest of SAARC
Country-wise distribution of Indias outward FDI in the SAARC Region (US$ Mn) Total Outward 1996-02 2002 03 2002-03 2003-04 2004-05 2005-06 2006-07 Total 6353.6 1334.3 1334 3 1191.2 2262.9 2136.3 5370.7 18653.7 South Asia 2.6 1.2 12 4.5 0.7 1 0.1 1.5 Bhutan 0 0 0 0 0 0.9 1.8 BD 9.1 7.4 74 7.6 11.1 5.9 11.1 8.4 Maldives 12.8 0 0 0 5.4 0.9 7.9 Nepal 40.7 35.6 35 6 9.9 24.9 3.9 2.1 29.5 Pakistan 0 15.7 15 7 0 0 0 0 0.9 Sri Lanka 37.4 41.3 41 3 82.6 64.1 84.9 85 51.4
Source: Computed from the Ministry of Finance Database
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Regional Infrastructure Opportunities
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South Asia Lags other Regions in Infrastructure
Delays in electrical connection
No.of electrical outage
Value lost due to electrical outage
No. of water supply failure
Delays in telephone connections
East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa OECD South Asia Sub-Saharan Africa
12.02 7.4 26.49 43.84 8.32 48.18 38.12
7.04 11.65 14.91 44.27 1.14 109.2 51.96
2.39 3 3.26 4.69 2.25 5.56 4.78
1.86 5 9.06 34.54 0.18 7.57 29.82
9.32 10.33 37.47 51.46 7.91 53.85 51.39
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Regional Infrastructure Opportunities - Water
The region is locked into a set of common problems which can only be resolved through regional cooperation. The tributaries in Nepal which feed the Ganges join up in Uttar Pradesh and Bihar before entering West Bengal and Bangladesh. Therefore, i h Th f in harnessing th waters of th G i the t f the Ganges, I di needs N India d Nepal's active participation l' ti ti i ti while any program of water management by Bangladesh whether for flood control or irrigation will not be feasible at all without the ultimate collaboration of the upper riparian states of India and Nepal. On the other hand with proper planning and investment the water resources of the region could well be used for the generation of electricity which could meet the energy needs of the entire South Asia region. g
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Regional Infrastructure Opportunities - Transport

In this process of rebuilding the transport infrastructure of the eastern region of South Asia, Bangladesh emerges as the hub around which reconstruction of land links could take place. g g p Bangladesh was once a major highway linking mainland India with both North Bengal and North-East India. The development of the land alignments, which would provide the North East of India access to the sea through the Bay of Bengal and integrate its market with Bangladesh could establish this undeveloped region as a staging post for economic links within South Asia and with land locked South West China. The Chittagong port could be built up as the nodal point for handling the trade of the region. Even though India and Bangladesh share a long international border and depend on transport infrastructure in a major way for their two-way trade, wide and strong interlinking between the two countries, particularly in the railway sector, is clearly absent.
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Regional Infrastructure Transport Continued

Bangladesh could also benefit from substantial freight and port charges from Chittagong and Mongla ports providing access to Indian and Nepalese exports. India and Nepal may also g p p g p p p y participate in the capacity and infrastructure development of Chittagong and Mongla ports. It is estimated that this integration of the transport network alone would increase intra SAARC trade three times. In order to ensure productive and sustainable cooperation in the transport sector, the member countries will have to ensure appropriate institutional arrangement for customs clearance, border crossing, documentation, payment mechanism, financial services, cost sharing arrangements pricing traffic discipline safety and dispute settlement procedures arrangements, pricing, discipline, procedures.
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Regional Energy Cooperation

Regional Energy Co-operation
Figure 1: Consumption of primary commercial energy in South Asia Country Oil Natural Gas Coal Hydro Nuclear Total Consumption 2.3 18.5 0.2 423.2 0.3 1.2 58.0 3.8
Afghanistan 1.8 0.3 0.1 0.1 0 Bangladesh 4.1 13.7 0.4 0.3 0 Bhutan 0.1 0 * 0.1 0 India 120.3 35.8 237.7 25.4 4.0 Maldives 0.3 0 0 0 0 Nepal 0.8 0 0.2 0.2 0 Pakistan 18.4 27.6 4.0 7.4 0.6 Sri Lanka 3.0 0 0 0.8 0 * Small Amount All data in mn tonnes oil equivalent Source: Developing Integrated Energy Policies in South Asia by Toufiq A. Siddiqi Figure 2: Fossil fuel imports by South Asian Country Country Oil Natural Gas Coal
Afghanistan 1.40 0 * Bangladesh g 3.70 0 0.45 Bhutan 0.04 0.01 * India 82.90 7.20 28.00 Maldives 0.27 0 0 Nepal 0.70 0 0.17 Pakistan 14.40 0 2.50 Sri Lanka 3.50 0 0 All data in mn tonnes oil equivalent *Small amount Source: Developing Integrated Energy Policies in South Asia by Toufiq A. Siddiqi
Imported Energy as % of total commercial energy 64 22 25 28 100 60 29 82
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A Regional Solution to the Power Crisis?

Bangladeshs power crisis situation is yet to improve as several more power plants were shut down by the Power Development Board (PDB) for gas supply shortages that badly affected life and business. According to reports published in the media last week, the PDB had to reduce production by 728 megawatts due to short supply of gas. Actually, the PDB generated 3500MWs-plus against a demand for 4400MWs. The Th SAARC E Energy C t Centre, which i now under consideration f b i set up, i expected t act as a hi h is d id ti for being t is t d to t catalyst for economic growth and development in the South Asian region. It will concentrate on the sharing of information, technological expertise and hardware. In view of the potential for regional co operation an energy ring has been conceptualised in the SAARC co-operation, SAARC. India has already grid interconnections with Nepal and Bhutan and technical studies were being carried out to explore the feasibility of similar transmission links with Sri Lanka and Bangladesh. There is a large potential for energy trade especially hydro electricity among SAARC countries As such trade, countries. such, all in the SAARC want to introduce energy trade in the region. In 1998, South Asian Regional Initiatives (SARI), a forum of Bangladesh, Bhutan, Nepal and India, had proposed creation of an 80,000 megawatt (MW) power reserve to ensure a dependable supply of electricity to member-nations. But it failed to implement as India wanted bilateral agreements with countries.
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Conclusions
Bangladesh can become the next Asian Tiger Key is greater integration with the rest of Asia It is still the Asian Century despite current turbulence in EM markets SAARC needs to become more focused to achieve trade and FDI goals Better India Bangladesh relations the missing link for effective regional integration India-Bangladesh Many Bangladeshi Corporates pushing a globalization and diversification strategy GOB and the Donor/Multilateral Agencies should remain focused and invest in facilitating greater integration into Global and Asian Economies
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Appendix
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Appendix 1: Sectors
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Agriculture
Key Characteristics
Agriculture accounts for about 21% of total GDP The Agricultural sector grew by 3.5% in 2008. Within the sector, Crop and Horticulture is growing at a rate of 3.44%. Over 63% of the countrys workforce is engaged in agriculture, p g g Total export earnings from agriculture stood at USD 379.1mn in April 2007-June 2007 and increased to USD 387.7mn in the April 2008-June 2008 period. About 75% of the cropped areas are paddy fields. Crops account for the major share of the agriculture sector at 53%. 53% Rice production contributes to about two-third of the total crop value. Among non-crop agriculture, fisheries have grown rapidly from 1980 to 2000 increasing its share of AGDP from 10 % to 23% 2000, 23%. Shrimp export is the second largest foreign exchange earner. The sector employs 600,000 workers. Agricultural imports are mainly rice, wheat and oilseeds.
Investment Opportunities
Widespread shifts in domestic food demand provide opportunities f t iti for hi h l high-value agriculture and related agroi lt d l t d businesses. The US and EU are potential markets for value horticultural export from Bangladesh. There is a huge gap (of at least 1mn MT per year) between the domestic demand and supply of seeds and fertilizers hence there are opportunities in this sub sector. Lack of cold storage or a functioning cold chain provides opportunities for a countrywide chain of such facilities. Exporting organic food could be profitable, as a USD 23bn global organic food market exists. A USD150bn-USD 500bn global Halal food market provides opportunities for Halal meat exports . Global Gl b l market t d k t trends f for eco-friendly products f i dl d t investments in jute and jute-related industries. favor f
USD 62bn of worldwide Medicinal plant industry presents good prospects. Retail food chain stores and food processing industries are some other prospective opportunities.
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Banking
Key Characteristics
There are 48 commercial banks in the country. The asset base of the banking system is about USD 35 billion In the last 8 years the billion. average growth of bank credits and deposits have been 16.2% and 14.8%, respectively. Four State-owned Commercial Banks (SCBs) account for roughly 50% of the bank branches and about 30% of bank credits and deposits. Private Commercial Banks (PCBs) continue to increase its market share (currently more than 60% of the assets and the deposits) in the industry. Market Share of Foreign Commercial Banks (FCBs) remained static over the years. Banks and NBFIs account for about 50% of the stock market capitalization; the sector remains the largest source of supply of new securities to the capital market (the banks issues stock dividends and right shares to support their asset growth). Supported by high growth in credit, deposit, trade, remittance and domestic money transfers, the half yearly net profit of 30 listed commercial banks increased by 50% in first half of 2008 2008. Banks, specially FCBs and PCBs, are rapidly adopting modern technology and there has been a high growth in ATM cards and credit cards Traditionally, Banks in Bangladesh provide mostly plain vanilla loans, d l deposits, t d fi it trade finance and remittance products. R d itt d t Recently tl banks have shown interest in capital market activities and merchant banking.
Outlook/ Investment Opportunities

As the access to financial services still vary, the banking sector is expected to maintain high growth in the near future Current earnings future. growth may moderate, but it is expected to remain high in the near future. Though there may be some margin shrinkages, the higher transaction volume will largely compensate for it. PCBs are expected to continue to increase market share in the near term; SCBs are expected to become stronger after the implementation of current reform initiatives. There may be some consolidations in the banking sector as competition intensifies and Basle II norms on capital adequacy are implemented strictly Some of the high growth private commercial banks currently trading at a price earning multiples below 10 (Exim, Shahjalal, Mercantile, Dhaka, Prime, NCCBL, NBL etc) appear to be attractive investments. As the Basle II is adopted, the banks will issue lots of corporate bonds. It will create opportunities to invest in fixed income securities in Bangladesh. pp g Privatization of SCBs (especially Rupali) may create opportunities for large international investors to invest in the banking sector of the country.
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Energy
Key Characteristics
Severe power crisis in BD - demand for around 5,500MW of electricity not met by an average supply of 3 500MW 3,500MW Only 43% of the population has access to electricity Demand for electricity is rising by around 8% every year 88% of total power comes from natural gas, followed by 7% from liquid fuel, 3% from Hydro, and 1.7% from coal Statistics show that if BDs proven reserve of 8.4tn cubic ft (TCF) gas starts depleting from 2012, after 2015 the country will require new reserves to meet growing demand Experts are optimistic th t BD h E t ti i ti that has prospects of di t f discovering i major petroleum resources in the Bay of Bengal BD has proven coal reserves of more than 2.5bn metric tons and probable reserves of around 3.3bn metric tons Only a 250MW coal fired power plant has been installed in BD. whereas 5,000 MW of new power plant capacity can be developed using domestic coal, that can generate power for up to 66 to 90 years Government-owned Eastern refinery, supplies only 40% of the country s countrys requirement, while the remainder is imported
Independent Power Producers (IPP) - profitable investment for f both local and f foreign investors Small Power Plants (SPP) - significant opportunities with lower capital investment Rental Power Plants (RPP) - profitable for short term investments usually with a contract period of 3 years Merchant power plants - investors can set up power plants without going through the tendering process Replacing the old government owned power plants in BD Setting up the first nuclear power plant in the country Off shore gas exploration and production Developing the untapped coal mines Setting up crude oil refinery plants Regional energy integration through grid connection with the neighboring countries Developing hydro power projects as joint venture partners with Nepal and Bhutan, and importing electricity to BD
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Healthcare
Key Characteristics
Bangladesh has achieved notable progress in ensuring primary healthcare through collective efforts by the government, NGOs and donor organizations. The private sector is steadily emerging as the dominant provider of secondary and tertiary medical care as 60% of the public healthcare expenditure is spent on primary healthcare. The demand for healthcare is rising rapidly due to increasing purchasing power of the growing middle and upper middle class, increasing life expectancy, declining mortality and i t lit d increasing i id i incidence of chronic and t t bl di f h i d treatable diseases. Evident features in the healthcare sector today are - concentration of secondary and tertiary care hospitals in urban areas, collaborative nature of the public and private hospitals, insignificant health insurance penetration and outflow of local patients to India, Thailand, Singapore and Malaysia for perceived better quality healthcare. Private high end hospitals with international tie-ups are coming up. Most private hospitals needs to upgrade training standards to improve soft and technical skills of doctors and support staff, adopt internationally accepted standards for hospital management and apply technology in managing the core and support services. Bangladesh trails its neighboring countries in terms of various healthcare infrastructure and facilities. The Indian healthcare industry is growing at 12% annually. Singapore is expected to invest heavily in hospitals to attract medical tourists. Malaysia is emphasizing on the development of biotechnology industry. Bangladesh needs to catch up with these countries in these areas.
The movement of local patients to other countries for treatment costs the Bangladeshi healthcare industry an estimated USD 200mn . This specifies the opportunity of establishing international standard hospitals in Bangladesh. The existing specialized healthcare facilities are inadequate to meet the growing demand. About 200,000 new cancer patients are added each year to the existing pool of 1mn cancer patients in Bangladesh. International Diabetes Foundation estimates 7.4mn or 6.1% of the total population will have diabetes by 2025. Bangladesh needs more specialized healthcare facilities to meet the projected demand . The global shortage of nurses is estimated to reach 1mn by 2020. Bangladesh would need around 180,000 more nurses by 2020. Being the 7th largest country in the world by population, Bangladesh has human resource to produce trained nurses for domestic and overseas employment. Telemedicine is a way to ensure access of the vast rural population to high quality healthcare. It can save healthcare costs by eliminating travel and accommodation expenses. The upcoming Wimax and 3GSM Technology for broadband internet connectivity will be conducive for telemedicine. Less than 1% Bangladeshis have health insurance. Bangladesh has a sizable market of more than 18mn people, consisting of the middle and upper middle class, for f health insurance. It is a solution f escalating medical expenses. for The Indian diagnostics and pathology sector, worth around USD 864mn, is growing at 20% annually through its outsourcing business. International standard pathological facilities in India are drawing outsourcing bids from the West. Bangladesh can utilize its geographic location, economic manpower and g g infrastructure to be an outsourcing destination for diagnostic services. Group purchasing and BOT (build-operate-transfer) arrangements for medical equipment procurement can significantly lower non-labor expenditure, and increase access to quality healthcare across the country. 42
Infrastructure
Key Characteristics
Modal share of roads and highways increasing at the expense of rail and water traffic traffic. Large amount of investment needed in building and maintaining a comprehensive road network Private sector can play an important role by bringing the necessary finance, efficient operating techniques and technological innovation innovation. Dhaka city is already one of the most densely populated cities in the world with more than 10mn people and projected to have a population of more than 20mn in the next 10 years. The roads of Dhaka city occupy only 8% (2,230 km) of the total surface area whereas at least 25% is required to facilitate a smooth transport system. Installation of alternative rapid transport systems has become unavoidable: huge investment needed. A broad-based reform initiative is underway Bangladesh Railway into a profitable entity entity. to turn
Private sector participation and public-private partnership needed to bring efficiency and sustainability into the infrastructure sector. Toll roads and bridges on BOT and/or other similar mechanisms can help meet the infrastructure demand of the country. Bus rapid transportation and/or mass rapid transit systems in Dhaka, Chittagong, and other metropolitan cities of Bangladesh: viable business propositions for the private sector. Dhaka Railway can be the largest infrastructure investment pp y p opportunity for the private sector. Capacity building of the Chittagong port and privatization of Mongla port by joint venturing with a globally experienced port/shipping entity The country can get rid of the huge deficit of water supply and p sanitation services with the involvement of private sector. As infrastructure is a public right and very sensitive issue, a sustainable and efficient mechanism has to be devised for the private sector participation in this sector.
Chittagong port is running to the full capacity while Mongla port is almost sitting idle. Private sector participation in the Bangladeshi water supply and sanitation sector remains limited to small businesses providing th service i rural and semi-urban areas. idi the i in l d i b
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Insurance
Key Characteristics
The gross insurance premium of the insurance sector of Bangladesh stood at USD 519mn in 2006, 75% of which came from life insurance. Despite the sector growing at a CAGR of 15% since 1997, insurance penetration (premium as a percentage of GDP) is a mere 0.8% in Bangladesh, which is one of the lowest in the world. Life insurance has been the driver of growth of insurance business in Bangladesh. The growth in life insurance premium has been 24% compared to 10% in general insurance premium from 1997 to 2006. The insurance sector has not realized its potential growth for inherent inefficiencies like the lack of professional and skilled management, minimal application of IT, sub-optimal level of investments, uncontrolled entry of a number of companies and the lack of an efficient regulator. The Bangladeshi insurance sector is eventually embarking on liberalization through the approval of the Insurance Regulatory Authority (IRA) Ordinance 2008 and the Insurance Ordinance (IO) 2008. The new ordinances have been framed in light of the Insurance Regulatory and Development Authority Act of 1999 of India. Some of the upcoming changes include approval of foreign ownership of insurance companies, approval of insurance brokerage, formation of an independent insurance regulatory authority, substantial increase in the required amount of paid up capital and introduction of mandatory solvency margin for all insurers. Bangladesh has the lowest insurance density compared to that of India, Pakistan and Sri Lanka. These neighboring countries had promulgated revised insurance Ordinances, similar to the ones promulgated in Bangladesh, during the late 90s/early 2000. As a result, these countries now have thriving insurance industries. Bangladesh is in the path of entering into such a growth phase with the pp approval of the new Ordinances.
Around 1% of the 150mn Bangladeshis are life insured. This indicates to a huge untapped market for life insurance. General insurance businesses mostly serve the export-import businesses. The large sub-sector encompassing private properties, such as households, small shops and business houses remain untapped. The growth of the insurance sector will be greatly multiplied through the entry of foreign insurance companies. Foreign insurers can transfer managerial and technical skills to tap into this vastly untapped market. Insurance brokerage has th potential to become a thriving sub sector i I b k h the t ti l t b th i i b t in Bangladesh. Insurance brokers can greatly benefit clients by offering them onestop solution. Brokers will ensure competition and transparency to a great extent. There is a latent demand for asset/liability management consultancy in Bangladesh in order to assist insurance companies that are not optimally investing their funds. Pension fund management is also another untapped opportunity. The demand for actuarial consultancy will gradually gain momentum in Bangladesh. Currently all the existing insurers use actuarial valuations done by firms outside the country. If Bangladesh enters into a detariff regime following the footsteps of India, Pakistan and Sri Lanka, actuarial services will be in more demand from the general insurance sector. Islamic insurance is another area which has scope for tremendous growth. Islamic insurance, also known as Takaful insurance, first started in Bangladesh in 2000, and within a span of 7 years, has attained a market share of around 12% in the life insurance sector and around 4% in the general insurance sector. Bangladesh being one of the largest Muslim majority countries has the potential to experience remarkable growth in Islamic insurance.
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Pharmaceuticals
Key Characteristics
BD pharma industry is the biggest (in volume) amongst all the y g LDCs - A USD 600mn industry and an average annual growth rate of 12% The industry produces about 450 drugs; has 8,000 different brands; meets 97% of the domestic demand. Local companies enjoy 86% market share. Of the 245 registered pharmaceuticals, th t i t d h ti l the top t ten players account f l t for 65% market share. Significant progress in the export market - Between 2003 and 2006 pharmaceutical exports has quadrupled in value from USD 7.9mn to USD 36.5mn. More than 80% of the Active Pharmaceutical Ingredients (API), the raw materials for pharmaceutical products, are imported. Also, the vaccine and injectibles market is entirely import driven.
Opportunities lie in off-shoring/outsourcing generic bulk and g p formulation drugs due to a cheap labor force and established infrastructure. As more western companies look to cut cost in their manufacture of bulk drugs as they focus more on the high-cost patented drugs, BD can present itself as an attractive destination for off-shoring. Since many companies have acquired international certifications like USFDA, UKMHRA and TGA, BD can penetrate further into regulated markets to boost its exports. With the decline in reverse-engineering in India and China, Bangladesh is in a position to emerge as one of the regional R&D centres for Pharma research. Immense import substitution opportunities lie in API manufacturing facilities and vaccine and injectibles manufacturing facilities. Through the establishment of modern technical facilities, the industry can emerge as a regional hub for pre-clinical testing and clinical trials The Contract Research Organization (CRO) model of trials. India is a good model to replicate. Local entrepreneurs are looking to expand globally. Some are looking to emulate the success of Indian powerhouses like Ranbaxy and Reddys of buying out distressed companies in the west to gain immediate market access Some are also venturing access. into newer horizons like Biotechnological drugs.
45
Telecoms
Key Characteristics
With over 45mn subscribers, mobile penetration stands at 29%. 29% Mobile market CAGR of 111% between 2003 and 2007. 6 Mobile service providers operating in the country, with 90%+ of their revenues coming from voice Voice revenues are voice. nearing saturation. APRU and APRM constantly declining. Wireline market dominated by govt owned BTRC 11 private govt. BTRC. operators are struggling in an over saturated market. Very low internet penetration - less than 1mn internet connections. Lack of robust last mile solution & low computer penetration has impeded the growth of internet market.
Four 3G licenses to be awarded between Q4 2008 and Q1 2009. 2009
3 WiMAX licenses have been awarded with commercial rollout expected to start from Q1 2009.
With less than 1% of the populating having internet connections, there is a large untapped market. 3G, Low pc penetration, lack of local content and money transfer facilities are the challenges.
Grameenphone IPO
USD 125mn IPO scheduled by Q1 2009. Mobile handset manufacturing Firms can take advantage of the cheap local labour to cater to the 7mn handset a year mobile market. Mobile Value Added Services(VAS) Very few VAS available to take advantage of the 45mn mobile consumers. Affordability and handset restrictions could prove to be hurdles. Internet content Very little local internet content available available. Low PC penetration serves as a hindrance.
46
Textiles sector
Key Characteristics
Textile sector contributes 10.5% to GDP of BD 38% of the industrial value added comes from the sector 80% of the total export earnings comes from textiles. Around 4.5mn workers are engaged in the textiles and clothing sector of which 80% are poor women. The total export earnings stood at USD 9.35bn (2006-07) and USD 9.98bn in the July 2007-May 2008 period. Present value addition in the clothing sector is around 45%. Knitwear is the leading export-earner at USD 4.92bn, followed by woven wear of USD 4.63bn, and textiles and other products of USD 0.43bn. The textile and clothing sector grew by15.84% in 2008. Compared to regional competitors, BDs main strengths are low-cost, efficient and skilled labor, low overhead costs and quality products products.
Significant growth opportunities are there if Bangladesh g g pp g diversifies into producing high-end apparels like suits, ties, etc. Investments in textile and fashion design training institutes can also attract FDI. Following can be considered as investment opportunities for local, joint ventures or 100% FDI: Blended (cotton or polyester) or 100% polyester yarn spinning 100% cotton, blended (cotton & polyester) or 100% polyester fabric weaving mills 100% cotton, blended (cotton & polyester) or 100% yarndyed fabric weaving mills Dyeing and Finishing Units RMG units low-priced knit and Woven g RMG Units Diversifications and high value-added items Clothing Accessories Industrial and Protective wear, etc Support Industries/Investments like Light Engineering and machine repairs, machine assembly, Central bonded warehouse, Water effluent treatment plant etc.
47
Appendix 2: Key Enabling Goals
48
The Key Enabling Goals

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. g g p y y
49
The Key Enabling Goals (contd)

Enabling Environment Goal 2 More effective Political, Regulatory and Corporate Governance Reduce the risks of corruption in government procurement programs as a soft means of party financing Decentralization of government to improve the efficiency and remove bottlenecks in government and the administrative bottlenecks Better corporate governance which should include more transparent, credible and reliable accounts from Bangladeshi companies. Greater protection of minority shareholder rights More effective tax collection
50

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. This is partly a reflection of very wide margins/spreads adopted by banks between deposit and lending rates. It is also a reflection of a number of companies unwilling to access the It stock market as a form of cheaper financing. The book building process for the proposed sale of Grameen Phone later in gp p p 2008 should alleviate some of the concerns from owners of businesses about depressed valuations
51

Enabling Environment Goal 4 Law and Order/Political Stability 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. Expanding the judiciary as well as increasing the pay for the police force as well as other law enforcement officials. A move away from confrontational politics between the major political parties
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Enabling Environment Goal 5 Education 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. An expansion of secondary and tertiary education f Establishment of a number of vocational training colleges in IT, English g g p , , plumbers Language and other specific areas such as nurses, electricians, p etc that might underpin an significant expansion in Manpower exports. Capitalize on the favourable demographics in Bangladesh with its young and growing population contrast with Europe Russia China and Japan Europe, Russia, which will suffer from a rapidly ageing population.
53
Appendix 3: Chindia
54
Chindia Facts
Chindia T d Chi di Today Accounts for

38% of world population 49% of world iron ore consumption 55% of world cement consumption 59% of world vegetable production
55
FDI South Asia

Share of Individual Countries in SAARC FDI Inflows in Selected Years (1990-2005) 1980 Bangladesh Bhutan Bh t -0.1 NA 1990 190 (2.5) 2 -0.1 India p Nepal Pakistan 62 0.2 75 1,705 -3 11 (0.6) ( ) 463 -7.2 Sri Lanka Maldives 42 -0.03 159 5.6 -5 6 9 -7.6 South Asia 179 2,539 -2.3 Asia Developing Country World
Source : UNCTAD (2007)
2003 350 (2.9) 1.06 1 06 -0.3 4,585 -3.4 14.8 (1.3) ( ) 534 -4.2 229 -5 7 5.7 14 -7.2 5,728 -3.5 110,489 -7.7 175138 (9.3) 557,869 -7.3 73
2004 460.43 (3.0) 3 -0.1 5,771 -3.2
2005 692 (4.9) 9 -1.4 6,676 -3.6 2.0 (0.2) ( )
2006 625 (3.9) 6 -0.9 16,881 -8.7 -7.0 (-0.4) ( ) 4,273 -24.1 480 -6 2 6.2 14 -6.4 22,274 -9.3 259,434 -12.9 379070 (13.8) 1,305,852 -12.6 12 6
1,118 -7.5 233 -4 7 4.7 15 -5.4 7,601 -3.4 169,999 -9.4 283030 (10.7) 742,143 -7.7 77
2,201 -13 272 -4 2 4.2 9 -4.8 9,866 -4.3 208,744 -11.1 314316 (12.8) 945,795 -9.4 94
5,043 12634 49,813
76,616 -8 134670 (8.9) 495,391 -7.6 76
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Overcoming Trade Bottlenecks in South Asia

Average export clearance time East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa OECD South Asia Sub-Saharan Africa 4.45 8.69 7.37 14.55 4.63 7.72 8.33 12.66 5.28 10.08 9.4 17.54 5.14 9.43 10.3 21.29 4.79 9.16 7.22 14.72 3.71 2.91 Longest export clear time 5.98 5.4 Average time to claim imports from customs 4.89 3.51 Longest time to claim imports from customs 8.98 25
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Infrastructure Life Cycle
20 years
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Historical Growth Patterns - Oil

Oil per capita rises rapidly during early industrialization, then levels to rapid real income growth. Rising world trade actually stimulates the industrialization phase.
Oil Consumption per capita: 1 to 28 1 to 18 1 to 7 1 to 1.7 0.7

Japan Korea
China & India
Lower U.S. labor costs versus Europe and the U.K. drive American industrialization, enrichment and energy consumption
US
59
Potential Demand for EM Assets from Pension Funds

Pension funds and equity ownership
Pension funds and equity owners Total assets of domestic pension funds* US$ % GDP
Emerging markets Developed markets
Source: *Hu 2005, ** OECD 2004
Pension fund asset allocation**, % allocation to: Equities Fixed income Other
10.7 10 7 25.4 79.6 79 6 44.7 12.3 12 3 34.3
390 bn 15 trn
12.0 12 0 39.2
Massive room for pension fund allocation to EM to grow Since 1996, $1.3trn of inflows into US equity funds Since 1996, $40bn of inflows into EM equity funds (source: ICI)
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BD in Asia

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BD in Asia

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Can Bangladesh be the Next Asian Tiger?

The Bangladesh Paradox

Bangladesh Macro Opportunities and Strategy

Why Bangladesh, Why Now

Poised for exponential growth

International interest growing

Growth opportunities everywhere

Bangladesh Strategic Location at the Heart of Chindia

The Asian Century

Why Emerging Markets Matter

Chindia History and Potential

A Strategy for Regional Integration

Regional Integration and FDI

The Importance of FDI: A Capital Constrained Economy?

Asia as a Source of FDI and Portfolio Capital

EM Countries Have Seen Rising FX Reserves/Capital Flows

EM Economies Benefiting from FDI

Bangladesh Should be Focusing on Attracting the BCG100

BCG100 have Aggressively Acquired EM Companies

Sectors with near term investment opportunities

Bangladesh and Regional Trade Opportunities

Increasing Regional Trade

BD Increasingly Open Economy but Asia Share Low

Export Receipts by Blocs

180% 160% 140% 120% 100% 80% 60% 40% 20% 0%

EU 55% NAFTA 28%

Trade Diversification Key

Fish, shrimps and prawns

Jute manufactures 0% 10% 4% 4% 3% Leather and leather manufactures Readymade garments

Furnace oil, naphtha and bitumen 76% Handicraft

Demographic Trends and Bangladesh

Population Growth set to Increase Dramatically

Bangladesh has one of the Fastest Growing Youth Population

Bangladesh Benefits from Favourable Demographics

Better Bangladesh-India Relations Remain Key

NE Indian States Underdeveloped- Bangladesh Trade Key

Little of Indias Surging FDI goes to the Rest of SAARC

Source: Computed from the Ministry of Finance Database

Regional Infrastructure Opportunities

South Asia Lags other Regions in Infrastructure

Delays in electrical connection

No.of electrical outage

Value lost due to electrical outage

No. of water supply failure

Delays in telephone connections

12.02 7.4 26.49 43.84 8.32 48.18 38.12

7.04 11.65 14.91 44.27 1.14 109.2 51.96

2.39 3 3.26 4.69 2.25 5.56 4.78

1.86 5 9.06 34.54 0.18 7.57 29.82

9.32 10.33 37.47 51.46 7.91 53.85 51.39

Regional Infrastructure Opportunities - Water

Regional Infrastructure Opportunities - Transport

Regional Infrastructure Transport Continued

Regional Energy Cooperation

Imported Energy as % of total commercial energy 64 22 25 28 100 60 29 82

A Regional Solution to the Power Crisis?

Outlook/ Investment Opportunities

Appendix 2: Key Enabling Goals

The Key Enabling Goals

The Key Enabling Goals (contd)

The Key Enabling Goals (contd)

The Key Enabling Goals (contd)

The Key Enabling Goals (contd)