01 February 2009

AT CAPITAL RESEARCH
AT Capital Weekly Update

Key themes in this issue are: Bangladesh Overview: • Last week, the Bangladesh Bank published their latest Quarterly Report on the Economy for the Oct-Dec 2008 period. Their central expectation remains that GDP growth for FY 08/09 will only slow modestly to 6%. However they also acknowledged growing storm clouds in the global economy that might affect Bangladesh, at least in their risk scenario BB appears reluctant to make any early shifts in its exchange rate policy but underlines the need to increase the scope for fiscal policy measures to tackle any spillover of the global crisis on Bangladesh. We discuss some potential objectives for the Financial Crisis Taskforce, which is about to be announced by the Finance Minister, MA Muhith. One is some form of “Early Warning System” so that the Government and the central bank, receive evidence on which sectors are suffering either through collapsing demand in key export markets, sharp declines in commodity prices or indeed exchange rate shifts in regional competitors such as India, Pakistan, Sri Lanka or Vietnam. At the Davos World Economic Forum, recession gloom permeated with Microsoft Founder Bill Gates suggesting that it could take 4 years for the world to return to growth. Dubai’s property market, once a favorite destination of foreign investors, is in dire straits as developers face a collapse in sales amid dire investor sentiment and banks shy away from providing mortgages. This suggests that remittance flows to Bangladesh are likely to decline in 2009.

Weekly News Update

• •

Special Focus Reports: • A Strategy for Diversifying Exports: In our first special focus article, we summarize some of the recent research on the optimal structure and objectives of Export Promotion Agencies (EPAs) and then outline a number of target sectors for Bangladesh to most effectively diversify exports. A Report published by UNDP identifies seven sectors in Bangladesh that have great potential for export diversification by utilizing Bangladesh’s comparative advantages – local raw materials, cheap labour, and existing industries and resources. The sectors are – agro processing, light engineering, herbal medicine, home textiles, Jute diversified products, Specialized crafts – handmade paper and leaf baskets, Export of human resources EM Capital Flows to Slump in 2009: In our second special focus report this week, we summarize the latest IIF report on capital flows.Net capital flows to EM are forecast to be USD 165bn in 2009 down from USD 466bn in 2008 and USD 929bn in 2007. The IIF forecast global growth to slump to -1.1% in 2009, a far more bearish forecast than the IMF which recently cut their 2009 Global forecast to 0.5% However despite the more challenging environment, Bangladesh is still well poised to capture a growing slice of a diminished FDI pie given it had the best performing stockmarket and most resilient economy in the region in 2008.

EDITORS

Asian Tiger Capital Partners

Ifty Islam Managing Partner ifty.islam@at-capital.com Syeed Khan Partner syeed.khan@at-capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at-capital.com

WEF 2009 Davos Gloom as Global Recession Prospects Worsen

Asian Tiger Capital Partners UTC Building, Level 16 8 Panthapath, Dhaka-1215 Bangladesh Tel: 8155144, 8110345 Fax: 9118582 www.at-capital.com

01 February 2009

AT CAPITAL RESEARCH
Page

Contents

Bangladesh Overview
Doom and Gloom at Davos WEF 2009 Middle East property market continues to slide signaling risks for manpower exports and remittance flow BD Finance Ministry to Set up Financial Crisis Taskforce BB believe Domestic Demand Might be Positively Influenced by arrival OF newly elected Government Export Risks are emerging outside the RMG sector given Global Slowdown Export Diversification Increasingly Important Remittance Slowdown Risks Underline Need for More Effective Vocational Training for Manpower Exports Still few Signs of Imminent Moves on Exchange Rate Price pressures have been declining internationally Impact of Global Financial Crisis on Bangladesh Economy Still Uncertain BB Recommends Increasing Scope for Fiscal Policy Stimulus to Tackle Crisis 3 3 4 4 4 4 4 5 5 6 6

Special Focus
Export Diversification Capital Flows to Emerging Market Economies – 2009 Outlook

7 7 13 18 19 20

Stock Market Weekly
Weekly Stock Market Commentary Stock Market News

Economics
Economics News

22 23 25 25 26 28 29

Sector News
Agriculture/ Banking Ceramics/ Infrastructure & Energy Pharmaceuticals / Real Estate/ Technology/ Telecoms Textiles

_______________________________________________________________________________________
AT Capital Weekly Update 2

01 February 2009

AT CAPITAL RESEARCH
Ifty Islam, Managing Partner
ifty.islam@at-capital.com

Bangladesh Overview
Last week, Bangladesh Bank published their latest Quarterly Report on the Economy for the Oct-Dec 2008 period. Their central expectation remains that GDP growth for FY 08/09 will only slow modestly to 6%. However they also acknowledged growing storm clouds in the global economy that might affect Bangladesh, at least in their risk scenario, and emphasized the need for fiscal discipline and more effective tax collection in order to ensure their was latitude for fiscal support for sectors and industries which are more vulnerable to the global downturn. This suggestion is timely, given the number of reports in the local press in the past week on the textiles, ceramics and manpower sectors all signal some early signs of slowdown.

Doom and Gloom at Davos WEF 2009
Globally the picture is turning increasingly negative. At the Davos World Economic Forum, economic gloom permeated with Microsoft Founder Bill Gates suggesting that it could take 4 years for the world to return to growth. It was a WEF driven by tensions over the global financial crisis. As John Gapper of the FT noted, “The WEF had an impossible task this year – to forge harmony out of tension, particularly over the financial crisis and how the world can recover from it. Instead, Davos became the place where the pent-up dismay and anger over what Wall Street wrought boiled to the surface… Beneath the verbal sparring, the week exposed some big obstacles to the stated aim of many speakers – to ensure that the world tackles the economic crisis together, rather than being drawn into a repeat of trade protectionism in the 1930s. That brought the Smoot-Hawley Tariff Act of 1930 but the problem now is more one of capital than trade.” While global bankers continued to cower amid the lectures from politicians, a major potential fissure in the global economic system is the growing dispute between the US and China over the former’s claim of Renminbi manipulation and the latter’s criticism of US banking and sub-prime misdeeds as the source of the global downturn.

As the Financial Times reported on Jan 31, Officials say that projects not yet sold to the public – as much as half all announced developments – will be shelved until market conditions improve. The government is also considering helping developers who are finding it hard to complete projects. But more building sites are falling silent as funds dry up, despite official assurances that the government will not allow the city’s skyline to be marred by halfbuilt structures. The authorities have yet to reveal a plan for financing the property sector, having assumed that deposit injections into the country’s banks last year will be enough to revive lending. The government estimates that, at most, 34,000 units will enter the market this year, only half the number predicted by several research reports, including Morgan Stanley’s August forecast in which the US bank also spoke of a 10 % price decline by 2010. With local banks reluctant to lend, financing Dubai’s property and infrastructure developments will remain its greatest challenge this year. Jeffrey Culpepper, Middle East head of investment banking for Credit Suisse, stated that “Possible access to federal [UAE] funding will drive how much Dubai can and cannot do to maintain growth…If you look at all the mega-projects announced, without federal funding and with the current dislocation in the global finance markets, some will be hard to finish on schedule.” As the FT notes” “Dubai’s ambitions may rest not only on the health of the global economy, and with it a revival of the oil price, but also on the attitude of global banks and capital markets. Dubai has spent three decades transforming itself into a global city; its future now depends on the world reciprocating this grand vision.” Separately, it was reported that Standard & Poor’s on Wednesday downgraded two prominent Bahrain-based investment companies to junk status as signs mount the Gulf’s financial system is flagging. Arcapita and Investcorp were both downgraded to BB+ from BBB and put on negative outlook for further downgrades by S&P, which cited the “difficult operating environment” for the two alternative investment companies. Arcapita and Investcorp are the latest in a long line of credit downgrades in the Gulf, which had initially seemed impervious to the financial crisis. However, after oil prices tumbled and debt markets froze last autumn, profits have been slashed and analysts fret about an overexposure to wilting property markets in some countries. 3

Middle East property market continues to slide signaling risks for manpower exports and remittance flows
Dubai’s property market, once a favorite destination of foreign investors, is in need of major financial restructuring as developers face a collapse in sales amid dire investor sentiment and banks shy away from providing mortgages. Prices fell 23 % between the third and fourth quarters of last year, according to HSBC’s index covering mortgage issuance – although anecdotal evidence suggests some distressed properties are selling at about half presummer peaks.

_______________________________________________________________________________________
AT Capital Weekly Update

01 February 2009
In December, Fitch downgraded the individual ratings of 17 banks across the Gulf while S&P revised its outlook on seven of Dubai’s government-linked entities from stable to negative. Investcorp, which is listed on the London Stock Exchange, manages about USD17.7bn in global alternative assets such as private equity, hedge funds, and real estate. Arcapita manages about USD5bn predominantly in private equity and real estate according to Islamic principles. Nearly USD4bn of Investcorp’s assets under management are the bank’s own capital, which may expose it “to significant risks as real estate and private equity investments in particular are relatively illiquid,” S&P said in a statement. S&P analyst Mohamed Damak stated that Arcapita’s revision was due to its “weak liquidity profile amid an increasingly difficult operating environment.” The agency said Arcapita had not been able to fully place investments made in 2008 with clients, triggering a decline in liquidity and an increase in its leverage ratio.

AT CAPITAL RESEARCH
in 2009 is still consistent with a marked absolute slowdown in BD growth prospects in an environment where China is likely to grow below 6% this year and the Institute for International Finance (IIF) forecasting global GDP contracting at 1.1%. Below we outline some of the key highlights of the BB Quarterly Report.

BB believes domestic demand might be positively influenced by arrival of newly elected government
BB: “Thus PAU (Policy Action Unit) projections show that the economy is now well poised to achieve a GDP growth rate of around 6.0 % in FY09 if the present trends are sustained. Moreover, with an elected government in power and adoption of new economic measures by the present government, it is likely that business confidence and investment climate would further improve in the coming months and if no drastic shock to the present buoyant export growth takes place, the economy could grow faster in FY09.”

BD Finance Ministry to set up financial crisis taskforce
On Jan 31, Finance Minister MA Muhith confirmed that “the proposed high-powered committee would be in place anytime to work out strategy to face the possible effects of global recession on the country's economy.” A Daily Star article also confirmed that “As per the proposal, the finance minister would head the committee to be represented by political leaders, trade body leaders and stakeholders of trade, industry and business to keep close watch on the effects of the financial crisis and take remedial measures…” and that “Experts and trade bodies suggested possible mechanisms to face the challenge would be to reduce lending rates to a tolerable level particularly for the exportoriented and manufacturing sectors and keeping exchange rate stable and competitive.”
Source: BB

Recent comments from the BB suggest, it seems unlikely that the central bank is considering any imminent change in exchange rate policy though keeping it “stable” may not be consistent necessarily with maintaining “competitiveness”. It seems likely that one of the goals of the Financial Crisis Taskforce will be to institute some form of “ Early Warning System” so that the Government, both key ministries and the central bank, receive evidence on which sectors are suffering either though collapsing demand in key export markets, sharp declines in commodity prices or indeed exchange rate shifts in regional competitors such as India, Pakistan, Sri Lanka or Vietnam. Targeted temporary fiscal measures such as cash subsidies or reduced taxation might be appropriate. An alternative is for the central bank to encourage commercial banks to offer lower interest loans to vulnerable sectors. There has also been some talk of a two-tier exchange rate system with certain exporters receiving more favorable BDT exchange rates than the economy as a whole. But this seems the least workable and appealing of the various policy measures. While Bangladesh has been far more resilient than almost every other economy in the region to the spillover effects of the global downturn, we believe the government’s initiative in pursuing the taskforce is timely and to be commended. Relative GDP resilience AT Capital Weekly Update

Export risks are emerging outside the RMG sector given global slowdown
BB: “The positive near term outlook of this quarterly is underpinned by several factors covering both policy and institutional dimensions. With continuing slowdown of global growth, the risk of export demand slowing down and remittances losing momentum cannot be fully ruled out. The possibility of export slowdown for RMG products is low due to Bangladesh's export concentration in the low-price and basic product segment of the apparel market in the advanced countries. However, the weakening possibility is higher for exports of several other items such as shrimps, leather and leather goods, electronics, ceramic tableware, vegetables, and similar other items. Although the export shares of these items are low, it is important to monitor the export performance of the vulnerable items and take appropriate measures so that strong export growth is sustained…”

Export diversification increasingly important
BB: “Along with remaining vigilant regarding price competitiveness, more efforts are needed toward diversifying the export basket, adding more value added products to export items, and exploring new markets in order to expand both export 4

_______________________________________________________________________________________

01 February 2009
products and destinations. For the RMG sector, it would be critical to ensure smooth and production friendly environment and uninterrupted access to power and other inputs to retain competitiveness. It may be useful to adopt a comprehensive export (including export of services) promotion program to expedite the implementation of short and medium/long term export promotion measures employing a product and country specific approach.

AT CAPITAL RESEARCH
in the world market for much of Bangladesh's major exportable. A better policy to support export growth could be to reduce the cost of doing business, and ensure smooth and production friendly environment along with uninterrupted access to inputs to improve competitiveness especially of the RMG sector. The present circumstances and the current state of macroeconomic fundamentals do not provide enough justification of pursuing any policy of letting the exchange rate to depreciate to any significant extent. Besides, any large depreciation of Taka is not likely to increase Bangladesh's exports appreciably in the present global situation. On the other hand, it might adversely affect the country's gradually improving domestic growth prospects through raising import cost of capital goods and other essentials. Therefore, it would be important to keep a close watch on exchange rate movements of currencies of Bangladesh's close competitors in the export market and assess the pressure on the country's current exchange rate policy of maintaining reasonable exchange rate stability and Bangladesh's competitiveness.”

Remittance slowdown risks underline need for more effective vocational training for manpower exports
BB: Since much of the remittances come from low skilled workers from oil-rich countries of the Middle East, their remittances do not face much immediate risk as these economies have accumulated large reserves from the oil price boom. The fall in oil prices might partially wipe out the windfall gains, but the massive programs of modernization and infrastructure buildup in the region are likely to be tempered but not halted. As such, migrant workers from Bangladesh would continue to be in demand. However, new recruitments might slow down. Remittances from USA and Europe could face modest but temporary setback. As such, Bangladesh's policy priority should be to resolve the hurdles facing expatriate workers at skilled technical and service workers.

Still few signs of imminent moves on exchange rate
BB:” In recent months, there has been some sharp cross-rate movements through strengthening and weakening of currencies of Bangladesh's major trading partners the impact of which on the country's export competitiveness is an issue that needs careful consideration. In adopting an appropriate foreign exchange rate policy, Bangladesh needs to take into account a number of considerations including (i) direction of trade covering both origin of imports and destination of exports; (ii) industry composition of trade flows; and (iii) origin of capital inflows especially remittances.”

Source: BB

Price pressures have been declining internationally
BB: “In the global market, prices of most food and non-food items have fallen sharply in recent months largely in response to depressed economic prospects, especially in advanced economies, resulting from the global financial crisis. The IMF international commodity price index (2005=100), which includes both fuel and non-fuel price indexes, decreased by 43.4 % by end of Q2 FY09 from the end of the previous quarter….Prices of major food items with reference to the consumption basket in Bangladesh also declined in a similar fashion. The price of rice in the international market declined by around 23 % in Q2 FY09 although the price still remains 46 % higher than the price in the corresponding quarter of the previous year.

BB:” This quarterly reports that although Bangladesh's real effective exchange rate has somewhat appreciated in recent months, Bangladesh still enjoys competitiveness. In addition, since the exchange rate issue has inflation dimension, Bangladesh needs to confront the challenging tradeoff between keeping inflation down and achieving better competitiveness through exchange rate management. Any improper exchange rate adjustment can harm even the exporters, if this raises costs through increasing domestic prices of imported raw materials especially in the presence of limited scope for exporters to raise prices due to sharp competition

_______________________________________________________________________________________
AT Capital Weekly Update 5

01 February 2009

AT CAPITAL RESEARCH
prudent to (i) trim low priority expenditure and improve revenue collections to help protect fiscal position and the government's ability to finance priority projects; (ii) rationalize tariffs/duties on imports of nonessential/luxury goods and similar goods produced locally as a means of increasing the fiscal base as well as to support priority domestic production, (iii) prepare an action plan to create some fiscal space to respond to any downturn in economic activities or external shocks due to the ongoing global crisis. In particular, tax collection efforts need strengthening especially since earning from customs duty is likely to slowdown in the coming months due to falling value of imports resulting from declining commodity prices in the international market. “

Prices of other primary commodities like wheat and edible oil demonstrated large declines during the quarter. Average price of crude oil (petroleum) stood at USD 41.53 per barrel at the end of Q2 FY09 as compared with USD 99.29 per barrel in Q1 FY09 after experiencing a record high of USD 131.50 per barrel at the end of FY08. Overall, there has been a rapid decline in prices of both food and non-food commodities in the international market that propels favorable inflation prospects for Bangladesh in FY09”

Impact of global financial crisis on Bangladesh economy still uncertain
BB: “Although Bangladesh suffered significant loss of income in the external sector from severe terms of trade shock originating from higher food and petroleum prices, the loss was partly met by compensating growth in remittances.5 Nevertheless, potential channels of transmission of multiple downside risks of the global financial crisis still remain including lower inflow of foreign aid and foreign capital, adverse effect on exports, downward pressure on remittances, and slowdown in investments and growth. It is important, however, to recognize that significant uncertainty still surrounds the nature, scope, and severity of the crisis and the extent and duration of slowdown of global growth so that it is extremely difficult to predict the impact of the crisis on the Bangladesh economy. “

BB recommends increasing scope for fiscal policy stimulus to tackle crisis
BB: “The fiscal sector had to withstand significant pressure during H1 FY09 due to rapidly rising cost of subsidies and other current expenditures. In view of the large demands for public funds that are already accommodated in the FY09 budget, it would be

_______________________________________________________________________________________
AT Capital Weekly Update 6

01 February 2009

AT CAPITAL RESEARCH
of EPAs services), but which are not yet exporters. The use of office representation abroad has a positive impact on exports in the full sample, but a negative impact in a sub-sample of developing countries, suggesting that in poorer countries EPAs efforts should focus on on-shore activities. This means that in poor countries, overseas export promotion through trade fairs is often a poor use of money. There should be greater focus on helping companies and sectors domestically to develop their export strategies. The International Trade Council (ITC), a UN agency, noted that “In an ideal trade support network, the national trade promotion agency would act as a first-stop shop for the business community and, through its referral system, coordinate the trade support network’s overall response to the individual exporter. Another export promotion specialist, M Czinkota in, ‘National Export Promotion: A Statement of Issues, Changes, and Opportunities” noted that “The key determinant of export performance is the increased competitiveness of firms. … Export promotion must have a decidedly inward looking component, which makes the production of goods and services cheaper, faster, and better competitiveness of firms. …” Why Should Governments Promote Exports? Firms profit from exporting and export promotion services are available from private sector organisations (e.g., industry associations and chambers of commerce) and business consulting firms. That begs the question, ‘What role is there for government?’ As Boston Consulting Group (BCG) has noted, supporters of government-sponsored export promotion argue that governments can effectively lower the barriers that stop firms from exporting. These barriers include internal capability failings and difficulties in gaining access to international markets. The argument is that many firms are discouraged from exporting because of the cost to them of lowering these barriers, but that government can use its institutional strength to provide services that do so. Governments can realize benefits of scale and scope by providing services across a large number of exporters. On the issue of firm capabilities, many (especially smaller) businesses lack the procedural knowledge, functional expertise and/or financial resources needed to meet the increased challenges and risks that exporting represents. Furthermore, such firms may be unable to assess the benefits of exporting that can offset those risks. Decision-making in small firms is highly informal and relies heavily on individuals and personal contacts. On the issue of international market access, supporters of government sponsored export promotion argue that the government can reduce regulatory and information barriers relatively simply and cost effectively. For a firm acting alone, however, the high cost of doing this is likely to outweigh the potential benefits, if it is indeed possible for a private firm to do. The more unfamiliar a destination country is, or the more rudimentary its institutions, or the greater the role of government in its economy, then the more helpful it is for exporters (including large firms and well-established exporters) if their own government has a trade presence there. Government involvement

Special Focus: Export Diversification
There has been a great deal of justifiable national pride in the resilience of Bangladesh’s twin USD 10bn+ export sectors, Ready Made Garments (RMG) and Manpower, to the global financial crisis of 2008. But, it has been evident for most policymakers that it will be difficult for us to move to the next phase of Bangladesh’s economic development without developing new industries. However, the next major export sectors, footwear/leather goods and frozen foods/aquaculture, are barely worth USD 500mn. There has been much talk about developing strategies for export diversification, but the question is how we can translate the rhetoric into policy reality. This Special Focus summarizes some of the recent research on the optimal structure and objectives of Export Promotion Agencies (EPAs) and then outlines a number of target sectors for Bangladesh to most effectively diversify exports. An Effective Export Promotion Agency A recent paper surveying export promotion agencies (EPA) in 104 developed and developing countries (“Export Promotion Agencies: What works and doesn’t work” Lederman, Olereagga and Payton) which offered a number of valuable insights that is relevant for Bangladesh. One can divide the services offered by EPAs into four broad categories: 1) country image building (advertising, promotional events, but also advocacy); 2) export support services (exporter training, technical assistance, capacity building, including regulatory compliance, information on trade finance, logistics, customs, packaging, pricing); 3) marketing (trade fairs, exporter and importer missions, followup services offered by representatives abroad); 4) market research and publications (general, sector, and firm level information, such as market surveys, on-line information on export markets, publications encouraging firms to export, importer and exporter contact databases). Other the instruments that developing countries have used to support exporters (and at times, domestic suppliers to exporters) are the provision of credit at favorable interest rates, preferential prices for inputs like electricity and transport, lower tax rates, tariff exemptions, and preferential access to foreign currency. For each USD1 of export promotion, the authors estimated a USD 40 increase in exports for the median EPA. In terms of what type of institutional arrangements, objectives and activities lead to a stronger impact on exports their results suggest the following: EPAs should have a large share of the executive board in the hands of the private sector, but a large share of their budget should be publicly funded. The proliferation of small agencies within a country leads to an overall less effective program. EPAs are more effective when focusing on nontraditional exports, or have some broad sector focus (e.g., agriculture, manufacturing, tourism, high-tech, etc...). They should also focus their activities on large firms (which can take advantage AT Capital Weekly Update

_______________________________________________________________________________________
7

01 February 2009
may, in some circumstances, add to the exporting firm’s credibility in the destination country. The case for government promotion of exports is likely to be stronger in a country like New Zealand where hurdles such as small scale and isolation, are higher. Opponents of government involvement in export promotion point to the fact that, rather than correct market shortcomings, it may worsen the situation. Although an advocate of governmentsponsored export promotion, Czinkota observes that: Institutionally, it appears to many that export promotion organizations over time have become bureaucratised and politicised. Export promotion authorities have often become the grazing grounds for retired officials and have served as havens for job generation. Governments are accused of using export promotion events such as trade missions merely as tools to reward political friends. Goals have become blurred and efficiency is low. Just like the creation of state-controlled firms, export promotion institutions, in many instances, are said to have become a good idea gone bad.” Effective integration and coordination is the preferred approach – it makes the best use of resources, helps create cohesion among service providers, and avoids the confusion that can be created when exporters have to navigate their own way through a multiplicity of services and agencies. However, attaining effective integration and coordination can be difficult, because it requires existing departments or agencies to accept a more limited role – an objective likely to meet with some resistance. • Customised training; or • One-on-one development

AT CAPITAL RESEARCH
Governments can also offer initiatives designed to assist exportready firms to understand, explore and enter offshore markets. Services can range from desk information to in-market support, and differ according to the stage of the export process at which they are provided. The progression from desk information to inmarket support mirrors the increasing usefulness that existing and potential exporters attach to the services. The chart below lays out these options and the standard portfolio of programmes employed by export promotion agencies. Classification of Export Promotion Programmes

Source: BCG The most common criticism of export promotion programs, from users and independent commentators alike, is that they focus too heavily on highly visible but not necessarily high value services. Trade fairs and missions are typical targets of this criticism. In many countries they are the best funded and most heavily patronised programmes, yet assessments of their effectiveness diverge widely. For example, some analysts assert that they are ‘generally highly regarded by firms’ for giving low-risk exposure to foreign markets. The argument here is that trade fairs and missions can provide the experiential (hands-on) knowledge that managers (especially of smaller firms) often make decisions on. Yet a number of researchers have found that ‘trade mission programmes were not considered very effective by those who had participated in them’. This accords with those interviewees who believe that trade fairs and missions are too often ‘paid vacations’ driven by personal or political agendas rather than by commercial imperatives. The reality is that the effectiveness of trade fairs and missions will depend on a host of factors, including how potential participants are screened, the level of financial contribution required of them, the preparatory work undertaken, the event itself, the network of contacts that the TPO staff has in the destination, the subsequent follow-up with the firm, and the extent to which the visits are integrated with other export development and promotion 8

Source: BCG Programmes BCG also highlighted that National export promotion organisations can and do undertake a large and diverse range of initiatives at either or both of the pre-export and export-ready stages. Pre-export initiatives are designed to build onshore export capacity and can be categorised according to the type of assistance they provide: • Checklists, publications; • General education; AT Capital Weekly Update

_______________________________________________________________________________________

01 February 2009
programmes. Their effectiveness is also dependent on the cultural context of the participating business community, i.e. Asian exporters rely far more heavily on the introductions and networks provided by such events than do their western counterparts. Market intelligence is also treated by some export promotion agencies as a high priority service. Yet the information provided is often ‘too general, irrelevant, and outdated’ . It is customised and difficult-to-obtain information that is most valued by firms. A common theme raised in the BCG research was that TPOs should reduce spending in many traditional areas of activity and focus their efforts on clearly higher value programmes. The two areas typically singled out as needing attention were: customised support for entry and establishment in offshore markets, and the development of firms’ internal capacities and competence. In Czinkota’s view: The key determinant of export performance is the increased competitiveness of firms. … Export promotion must have a decidedly inward looking component, which makes the production of goods and services cheaper, faster, and better. The ITC agrees, arguing that ‘the fundamental constraint to improved export performance [is] the inability to develop internationally competitive export capacities that are consistent with market requirements’. Potential Export Diversification Sectors A Report published by UNDP titled “Export diversification for human development in the post ATC-Era” (2007) identifies seven sectors in Bangladesh that have great potential for export diversification by utilizing Bangladesh’s comparative advantages – local raw materials, cheap labour, and existing industries and resources. The sectors are – agro processing, light engineering, herbal medicine, home textiles, Jute diversified products, Specialized crafts – handmade paper and leaf baskets, Export of human resources Bangladesh has export potential in agro-processing products such as fresh or processed fruits and vegetables. Another possibility is Black Bengal Goat and while at present, goat meat exports from Bangladesh are yet to be significant, the sector has high potential due to growing world demand. In the case of light engineering, the local market is large and untapped. With a low wage and skilled workforce, coupled with a low start-up cost and a simple production process, this sector has high potential for being lucrative and for generating employment opportunities. The Light Engineering Sector consists of over 7,000 firms, employs 800,000 people and generates annual revenue of USD 1.6bn (IRIS 2005). The light engineering sector plays a significant role in providing machineries and spare parts to other key sectors such as agriculture, transportation, construction and RMG. There is also a huge market for herbal products worldwide, and with proper policy support and programmes, Bangladesh can significantly increase its export of herbs and organic products. In 1997, the Bangladesh National Food and Nutrition Policy was adopted, which recognized the need for further research on and

AT CAPITAL RESEARCH
promotion of herbal medicines. Moreover, herbal medicines and medicinal plants have been placed on the list of special development sectors by EPB, which indicates government interest in developing the industry. There is a huge market for herbal industry products worldwide, with an annual trade of USD 80bn in 2000. Trade in these products is growing at an annual rate of 10 percent (IRIS 2005). Europe alone captures 38 percent of total world imports of herbal products. India and China are the dominant exporters of herbal products in the international market, but Bangladesh has great potential to enter the market as well. The home textiles sector makes use of the same supply chains as the RMG sector, and thus can take advantage of existing infrastructure and skills in Bangladesh. The export of home textiles from Bangladesh has increased significantly during the past few years. Another item with export potential is jute diversified products, which include geo-textiles for land erosion control, jute reinforced plastics, jute laminates, pulp and paper, decorative fabrics, carpets and handicrafts. Because of the increasing demand for environment friendly fibres worldwide, these products have huge export potential. The traditional handicraft production is another sector with export potential. Within this sector, the international market for handmade paper has been increasing in recent years. Bangladesh can take advantage of this recent increase in demand while it is at its peak by using its comparative advantages and increasing its supply capabilities.

Below are some of the common constraints in export diversification faced by a number of LDCs, as identified in the UNDP paper There are a number of policy-induced, structural and demand-side problems faced by Bangladesh with regard to export diversification. Other least developed countries, such as Cambodia and Nepal, are also faced with similar challenges. Government policies and promotional measures For the development and expansion of non-traditional export sectors (such as agro-processing, light engineering, etc.), there is no alternative to effective government policies and promotional measures. A number of policies and programmes have been put in place in Bangladesh, Nepal, and Cambodia for the promotion of the sectors discussed above. For example, the trade regimes in all

_______________________________________________________________________________________
AT Capital Weekly Update 9

01 February 2009
these countries have been made liberal with a view to reducing the anti-export bias, and several export promotion measures have been introduced. However, study shows that in all these countries only a few sectors (mainly the RMG sector) have been the beneficiaries of such trade liberalization policies and export support measures. For example, in Bangladesh and Cambodia, the performance of non-RMG sectors has not been encouraging despite the decrease in anti-export biases over time in these economies. This underscores the importance of making existing policies and support programmes effective by making necessary policy reforms. Business environment Several business environment surveys (e.g., Doing Business Report of the World Bank and Global Competitiveness Report of the WEF) have indicated that the overall business environment in all these four countries is far from satisfactory. Corruption, inefficiency in government organizations, an inefficient tax administration and an underdeveloped property rights regime are among the major factors responsible for a poor business environment. Hence, effective diversification of export portfolios becomes difficult under such a business environment. Skilled workforce Diversification of export portfolio and promotion of high valueadded export products require skilled labour force, which is lacking in Bangladesh as well as the other LDCs. This underscores the need for investing in human capital in these LDCs. Supply-side constraints Supply-side constraints that are common in Bangladesh and the other mentioned LDCs countries include high lead-time, poor physical infrastructure, lack of access to credit and inefficient land transportation. These constraints seriously undermine the export prospects of non-traditional sectors, and thus work against the effectiveness of export diversification strategies. Therefore, easing the supplyside bottlenecks should be the top priority for the governments and concerned institutions in these countries. Demand-side constraints In addition to various internal constraints, a number of external factors also act as impediments to the successful expansion of non-traditional export sectors in these economies. Three major demand-side constraints are the high tariffs in the US market, stringent Rules of Origin (ROO) in the EU market, and stringent standard-related requirements in the developed country markets in general. For example, the UNDP paper states that Sanitary and Phytosanitary requirements in the EU is one of the major constraints on the expansion of export of vegetables, fruits and goat meat from Bangladesh. Therefore, it is crucial for Bangladesh to make efforts to modernize its testing laboratories and ensure the quality of their exports. Sector-specific supply-side constraints impeding diversification and measures that need to be taken export •

AT CAPITAL RESEARCH
In addition, expanding units in agriculture are not eligible for tax holidays in Bangladesh. This discourages investors from expanding their businesses and penetrating international markets. Due to poor postharvest handling, a significant portion of production is also lost, and the lack of cold storage facilities in transit to airport often creates problems for exporters. • Poor quality of seeds and poor packaging also dampen export prospects. • Other constraints facing the agro-processing industry include: the existence of only a few processing plants; traceability and SPS requirements; lack of low-interest loans; and lack of information on market prices and marketing skills among exporters. Within the agro-processing sector, three sub-sectors, namely the goat meat, fruit processing and vegetable processing sectors, face a number of supply-side constraints. • In the case of goat meat, the most severe problems are the lack of technological advancement; inadequate R&D in goat farming as well as meat processing; lack of required training and market research; lack of quality assurance; and above all, lack of government policy initiatives. • For the fruit processing industry, the major constraints are imbalanced product quality; lack of product channeling from the remote areas to urban and export markets; absence of processing plants; lack of specialized cold storage; lack of market information; lack of competitiveness; and inadequate post-harvest techniques. • The vegetable processing sector has been facing constraints such as inferior seed quality; inadequate post-harvest technology; inferior packaging quality; lack of quality assurance; and inadequate cooling chain and storage facility. Measures • Bangladesh should obtain internationally recognized certifications: While there is a tremendous opportunity for Bangladesh to export fruits, vegetables and black goat meat, the developed country markets require quality assurance and the ability to locate where tainted food originated in the value chain. In order to assure quality to market products internationally, internationally recognized certifications should be obtained by the companies concerned, primarily EurepGAP and Hazard Analysis and Critical Control Point (HACCP). • Marketing support is essential: Training for exporters should be organized to help them acquire market information, forecast demand trends and identify markets. Workshops should be held to equip them with skills and tools necessary for undertaking market research. The Export Promotion Bureau (EPB) of Bangladesh should facilitate training for enterprises as well as strengthen its own capacity to assist them by training its permanent staff in market forecasting and trend analysis. In all these activities, the coordination between EPB and the Department of Agricultural Marketing under the Ministry of Agriculture is vital.

Agro-processing sector Constraints • There are several constraints facing this industry. High duty on raw materials and packaging materials are a major concern as it increases the costs for exporters whose prices are set by the international market.

_______________________________________________________________________________________
AT Capital Weekly Update 10

01 February 2009
Generic spare parts/light engineering Constraints • The most significant supply-side constraints facing this sector are the lack of modern technological adaptation, and adequate training and skill development. • Others include lack of infrastructural facilities (mainly inadequate supply of electricity); • Lack of quality control facilities • High import duties on inputs and machineries; • Lack of metal-testing and R&D facilities. Measures • Providing training to workers to enhance their skills is critical. Firm managers should also be trained in basic business, including financial and management skills. • The creation of a metal-testing facility to ensure quality is equally important. • There is also a need to link the R&D activities of all of the engineering colleges with the private sector. • In order to promote exports, EPB should provide expanded assistance to exporters to attain international production techniques. EPB should also maintain a market information centre with updated information on light engineering materials and organize workshops on how best to use the resources on offer. Likewise, there is a need to create an industrial park with a view to attracting investment to the LES. Herbal medicines and medicinal plants Constraints • The major problems identified by the exporters of this sector are the lack of testing and quality control and standards. • There is a lack of knowledge about the preservation of raw materials and land, and about ensuring export quality. • There is a shortage of trained scientists to research on new uses for plant species. Hence, there is a shortage of R&D initiatives and programmes for skill and knowledge development in this line of production. • The industry also faces problems such as limited knowledge of raw materials, and storage and processing techniques; shortage of marketing channels and knowledge; and limited access to materials for commercial planting. Measures • There is a need to cluster grassroots producers and offer training not only in appropriate collection techniques but also in commercial production. • At the institutional level, it would be beneficial to establish a tissue culture lab to help supply the needed planting materials. • It is also important to increase the number of professionally trained herbal medicine practitioners and researchers. The government needs to provide assistance and grants for re-orientation and training of teachers, research workers and drug inspectors. • EPB should be assisted to establish a research wing entirely devoted to the incubation of the herbal medicine sector. Marketing research training, both on

AT CAPITAL RESEARCH
the part of EPB and exporters, is also critical to promote exports. Home textiles Constraints • High import duty on cotton; poor product development capabilities; lack of consistency and quality; lack of general management and business skills; and weak linkage between producers. • Low-skilled human resources; lack of R&D activities; lack of innovation of new designs and ideas; and limited marketing and promotional activities. Measures • Home textiles exporters require assistance in preparing catalogues, stalls, and display items. • Producers also require training in basic business techniques and further market research support. • EPB needs to facilitate their participation in major European trade fairs. • Design in innovation is a further area where investments will have a significant impact. • There is also a room for the home textiles industry to improve backward linkages to grassroots handloom weavers. Jute diversified products Constraints • A lack of modern technologies and international market needs assessment. • A lack of a wide product line and product development facilities; poor image of the products; and limited R&D activities. • Other problems include limited financing options; difficulty in entering overseas markets; competition from the synthetic sector; high labor costs; and obsolescence of machinery need to be addressed. Measures • Modernization efforts and technical upgradation must be given priority. • R&D efforts to commercialize jute technical textiles and geo-textiles should be pursued. • Market promotion programmes can be pursued to increase consumer awareness about jute products and highlight the environmental advantages of jute products. There is immense potential for increased jute use in the domestic market. Various market promotion programmes can be pursued to increase consumer awareness about jute and highlight the environmental advantages of the product. • In order to strengthen coordination among the several jute-related government organizations and to synergize the integrated development of the jute sector as a whole, the non-functional Diversified Jute Product Institute should be revamped. This body should subsume, merge, and integrate the functions of various institutions currently operating in the jute sector.

_______________________________________________________________________________________
AT Capital Weekly Update 11

01 February 2009
Specialized crafts – handmade paper and leaf baskets Constraints • The major supply-side constraints identified in the handicraft industry are the lack of uniform product quality, creative designing and trained human resources; • Limited access to business and market information; and difficulties in exploring international markets. Measures • There is a need to develop coordination and linkages among producers and to establish a databank of producers and networks with a base in the local chambers. • In the case of design, existing design institutes require assistance to develop curriculum related to handicraft innovation, and training is needed so that local producers acquire the skills to produce new designs of high quality. • EPB should offer marketing support and stock appropriate materials and publications, including those on foreign technology. EPB should also facilitate participation of producers in trade fairs and international events; monitor the quality and presentation of products; and advertise the uniqueness of Bangladeshi materials and designs in international fairs. Conclusion The new government appears to be committed to a policy of change with the immediate economic priorities being the energy sector and bringing down the price of essentials. However, Bangladesh has significant potential in several export-oriented industries, including pharmaceuticals, leather goods, frozen foods, shipbuilding, and information technology-enabled services (ITES). But a more effective policy of export promotion and diversification coupled with economic diplomacy will be critical if Bangladesh is to follow other Asian Tigers like Malaysia, and more recently Vietnam, into developing dynamic new export sectors and concurrently attracting substantial FDI. Ifty Islam Managing Partner ifty.islam@at-capital.com Jisha Sarwar Senior Research Associate jisha.sarwar@at-capital.com

AT CAPITAL RESEARCH

_______________________________________________________________________________________
AT Capital Weekly Update 12

01 February 2009

AT CAPITAL RESEARCH
GDP barely slowed (6.5% to just under 6%) versus massive economic dislocations and moves into recession in other EM economies and even Asian developed ones is again a strong marketing case for BD. The much documented "Walmart effect" whereby BD RMG exports have been resilient due to the focus on lower end garments popularized by Walmart has certainly been the dominant theme. This and our remittance flows from the Middle East might slow. But Bangladesh has the opportunity to benefit from a relocation of production from China, Taiwan and Korea and elsewhere as a lower cost manufacturing hub. 3) New Elected Government/Change Agenda The move back to democracy, free and fair elections and an overwhelming popular mandate for the Awami League government contrasts with instability in much of the rest of the region. The Cabinet appointments and commitments underline this is a government driven by a "Change Agenda". This is also likely to be attractive to foreign investors relative to the period of uncertainty during the CTG period.

Special Focus: Capital Flows to Emerging Market Economies – 2009 Outlook
EM Capital Flows set to decline… The Institute for International Finance (IIF), an association of the major global financial institutions, published their latest report on capital flows to Emerging Markets. They note that the outlook for private capital flows to emerging economies has deteriorated significantly in recent months. Net flows are now projected to be just USD 165 billion in 2009, down from USD 466 billion in 2008 (Table 1). This estimate for capital flows in 2009 is an unambiguously weak one, and a decline of 82% from the boom year of 2007 (USD 929 billion). It is also down substantially from IIF’s estimate for 2009 made just four months ago. Then, they projected net flows for the year to be USD 562 billion. To an extent, this sharp downward revision for 2009 is a reflection of a very tough environment for capital flows that became increasingly evident as 2008 Q4 progressed. As a result, IIF’s estimate of the outturn for 2008 has been revised down sharply, from USD 619 billion, net, in October 2008 to a current estimate of USD 466 billion. It is also consistent with the much weaker global growth outlook that they now envisage for 2009, which both reduces the supply of external finance, as lenders and investors turn more risk averse, as well as the demand for external finance for both consumption and investment spending. …but Bangladesh well-positioned to attract greater FDI Bangladesh is a fundamentally capital-constrained economy and needs to attract more foreign direct investment (FDI) into critical sectors like energy and infrastructure. The gloomier outlook for flows to EM means that we need to compete more effectively for foreign investment. On a positive note, Bangladesh starts 2009 in perhaps the strongest relative position in terms of being an attractive investment destination in its history. Three potential factors that can help it attract greater FDI this year include: 1) Stockmarket decoupling The DSE in 2008 only fell 7% relative to 50-75% declines in the BRICs (Brazil, Russia, India and China), around 60% in Vietnam and 70% in Dubai. So BD had one of the best stockmarkets in the world albeit driven by our relative lack of integration into global capital markets/the low percent of foreign investors in Bangladesh equities. But this lack of correlation of our stockmarkets to either EM or developed stockmarkets, makes us an attractive diversification play from a portfolio perspective. There had been much hype about EM decoupling but most EM markets suffered as much or more than the developed markets, certainly in terms of their capital markets, but increasingly in terms of their economies as the Economist articles this week underline. Bangladesh is perhaps one of the few truly "decoupled EM markets" 2) Economic resilience/Low cost Manufacturing hub While our stockmarket performance might reflect our lack of integration, our economy's resilience in 2008, when Bangladesh AT Capital Weekly Update

SUMMARY OF IIF 2009 OUTLOOK
The rest of this section summarizes the key highlights of the IIF Forecast. While all components of net private capital inflows have recently weakened, it is not surprising that the most significant drop in prospect is for net bank lending, which is forecast to shift from a net inflow of USD 167 billion in 2008, to a net outflow of USD 61 billion in 2009, a USD 227 billion negative swing. This would be a dramatic reversal from the peak year of banking sector net flows, of USD 410 billion in 2007. The region most directly affected by the slump in capital flows is Emerging Europe, which had been heavily dependent on external finance. Among our sample of countries from the region, strains have been most evident in Russia and Ukraine, although some smaller countries in the region (not in IIF’s sample) have been hit harder. Many of these difficulties seem likely to linger, as least through the first half of 2009. The economic outlook could turn somewhat positive in the second half of the year, and this would help stabilize a number of difficult emerging market situations. Moreover, years of steady policy reform and institutional strengthening in many key emerging economies have left them in much better shape to handle the current global downturn, severe as it is. Most have some—albeit limited—latitude to run countercyclical fiscal and, especially, monetary policies in the months ahead. Significant vulnerabilities remain, however, especially for large emerging market corporate borrowers with sizeable roll over needs. Private sector borrowers have at least USD 100 billion of debt service for market-based borrowing falling due in the first half of 2009. At the current level of market access, borrowers seem able to issue not much more than half this total. Policy makers in both mature and emerging markets would be well advised to address this refinancing problem head on in the weeks and months ahead.

_______________________________________________________________________________________
13

01 February 2009

AT CAPITAL RESEARCH
evident as 2007 progressed, particularly in the form of lost export markets. Moreover, net private sector flows to emerging economies—which had soared to remarkably high levels in 2007— began to fall steadily in 2008. Through the middle of 2008, however, the underlying economic performance of emerging economies was quite robust—sufficient, indeed, to provide an important global offset to U.S. economic weakness. These developments changed conspicuously in 2008Q3, since which time the overall global economy has been in recession, economic growth in emerging markets has slowed precipitously, while private capital flows to emerging markets have slumped. Three factors seem responsible for this sudden shift in business cycle conditions. First, the progressive tightening in monetary policy in most emerging economies— put in place in 2007 and the first half of 2008 in order to temper rising headline inflation— began to bite in those economies. Second, the spike in oil prices, which reached a peak in July, acted as a huge drag on global manufacturing activity, and a tax on oil consumers, that became fully evident in August. Third, and most significantly, the renewed flare up in global financial turmoil that came on the heels of the U.S. government's taking Fannie Mae and Freddie Mac into its conservatorship and the failure of Lehman Brothers in September had an immediate and severe impact across emerging economies and markets (Chart 2). Chart 2: U.S. Equity Volatility and EM Bond Spreads

Table 1 Emerging Market Economies' External Financing billions of U.S. dollars 2006 2007 2008e Current account balance 383.9 434.0 387.4 External financing, net: Private flows, net 564.9 928.6 465.8 Equity investment, net 222.3 296.1 174.1 Direct investment, net 170.9 304.1 263.4 Portfolio investment, net Private creditors, net Commercial banks, net Nonbanks, net Official flows, net IFIs Bilateral creditors 1 Resident lending/other, net Reserves (- = increase) 51.5 342.6 211.9 130.7 -57.5 -30.4 -27.1 336.5 554.8 -8.0 632.4 410.3 222.2 11.4 2.7 8.7 -425.3 -948.7 -89.3 291.7 166.6 125.1 41.0 16.6 24.3 -449.8 -444.3

2009f 322.8 165.3 194.8 197.5 -2.7 -29.5 -60.6 31.1 29.4 31.0 -1.6 -271.6 -245.9

e = estimate, f = IIF forecast 1 Including net lending, monetary gold, and errors and omissions. The Global Financial Crisis Worsens Significantly reduced capital flows to emerging economies are part of the broader financial and confidence crisis that has swept through the global economy in recent months. Historically, there is a positive correlation between global growth and our measure of net private capital flows to emerging economies, with a 1 %age point change in growth typically corresponding to a change in net capital flows of about 0.9 % of emerging economies’ combined GDP (Chart 1). Based on this relationship, our current estimate of an overall global contraction of about 1.1 % in 2009 is fully consistent with the projected slide in private capital flows to just 1.1 % of emerging market GDP (or USD165 billion). Of course, the softness in capital flows is both the result of, and a contributor to, weak global growth.

At first sight, it is not obvious why emerging economies and markets should have been so affected by the post- Lehman turmoil, especially given how well they had survived previous episodes of acute mature market weakness in August and December 2007 and March 2008 (Bear Stearns). In retrospect, three factors seem particularly important in explaining this rapid and severe contagion: • The near seizure of global interbank markets in the weeks following the collapse of Lehman Brothers delivered a sharp blow to global activity, as access to short-term financing for production and trade dried up. The result was a global scramble to preserve liquidity among banks, non-financial business and households. Ironically, many banks in emerging economies found themselves with severe funding difficulties even though their exposures to troubled assets in the United States were limited. Despite holding substantial foreign currency reserves, their own central banks were either unable or unwilling to supply banks with dollars, leading to significant dislocations, and forcing many banks in emerging market economies to suddenly turn very restrictive in their own lending activities. Some of these tensions were eased

Emerging economies had exhibited remarkable resilience through the first year of the current phase of global turmoil. They were certainly affected by the slowing in the U.S. economy that became AT Capital Weekly Update

_______________________________________________________________________________________
14

01 February 2009
after the Federal Reserve established swap lines with central banks in Brazil, Mexico, Korea and Singapore on October 29th. By that time, however, six weeks of damage had been done. • Second, although most emerging market governments had been restrained in their borrowing through the latest expansion, borrowing by both financial and nonfinancial private companies— in both local and foreign currency—had been relatively heavy. Banks in emerging markets—especially (but not exclusively) in Emerging Europe—had borrowed abroad in term debt markets (as well a short-term interbank markets) in order to fund aggressive rates of local lending growth. On the investor side, hedge funds had been important investors in emerging market corporate debt, and the post-Lehman squeeze on them added to the difficulties in emerging markets. Conditions in emerging corporate debt market had been deteriorating before September, but took a severe turn for the worse through Q4. • Third, the collapse in commodity prices—especially oil prices— after September has hit many emerging market borrowers hard. Many resource-based companies had increased borrowing in order to finance ambitious production expansion schemes. The greatest strains have come in parts of Latin America (Ecuador, Argentina and Venezuela) and Emerging Europe (Russia and Ukraine). Global Economy Likely to Decline in 2009: A First in Modern History The global economy has recently weakened decisively. Through much of 2007 and early 2008, the U.S. economy had slowed, but demand growth elsewhere was holding up quite well. This pattern of relative strength shifted after midyear, and the most extreme, synchronized downturn of the whole post-war period has taken hold in recent months (Chart 5). The result is that output in the three largest mature economies— the United States, Euro area and Japan—is likely to fall by 2.1 % in 2009, while growth in emerging markets will slow very sharply, to just 2.7 %, half the pace of 2008. All emerging regions will slow. In Emerging Asia, the moderation will be substantial, with Chinese growth slowing to 6.5 % and growth in the region as a whole moderating to 5.4 %. In Latin America, Mexico will experience a recession, and regional growth will slip below 1.0 %. Recession will be more widespread across Emerging Europe and the region will be the weakest among emerging economies. The contraction will be especially acute in Ukraine. Chart 3: IIF Net Private Capital Forecasting Errors and the Trend in Private Flows

AT CAPITAL RESEARCH
allowing central banks across the world to run easier monetary policies. Federal Reserve and Bank of Japan official policy rates are now close to zero, and rates will be cut below 2 % by the European Central Bank and Bank of England in coming months. Low G7 short-term interest rates typically form a very favorable backdrop in promoting capital flows to emerging economies. Falling headline inflation is also giving central banks in emerging economies the scope to ease policy, especially in Emerging Asia, but increasingly so now in Latin America and Emerging Europe. The tumbling oil price is also playing an important role in shifting income (and saving) from oil producers to oil consumers. The loss in income (as reflected in a declining current account balance) is most evident among large oil producers (GCC countries and Russia). The gain is most pronounced for oil consumers (the United States, Euro area and Asia). These oil price shifts are playing an important role in helping resolve some of the imbalances that have proven to be a threat to global stability. Most specifically, they are helping U.S. consumers rebuild their saving rate even through a phase of weak nominal income growth. The stresses during this phase of weak growth for emerging market borrowers result mainly from difficulties in rolling over market-based debt under conditions where it is not just their own prospects that have deteriorated, but also those of their lenders. Moreover, borrowers in emerging markets now face the prospect of being “crowded out” by the massive borrowing needs of G10 governments. We estimate the U.S. Federal borrowing requirement to be about USD1.75 trillion in the current fiscal year. G7 governments are also extending significant guarantees to banks and other corporations in their own economies (including some industrial companies), while G7 central banks have provided unlimited amounts of liquidity (via swap lines) to banks within their jurisdictions. While many of these support programs look warranted and helpful, they have the sideeffect of creating an “insider/outsider” problem, whereby relative conditions facing banks and companies in emerging market economies are made more challenging. Comparison with Previous Episodes The current slump in net private capital flows to emerging markets is shaping up to be the most dramatic on record. This is a remarkable development, since the two previous serious crisis episodes—1981-86 and 1996-2002—were periods of very severe adjustment for emerging market economies. Net private inflows fell from a peak of 3.5 % of emerging market GDP in 1981 to a trough of 0.3 % on GDP in 1986; they fell from a peak of 5.7 % of GDP in 1996 to a trough of 2 % of GDP in 2002. This time around, however, net flows seem likely to fall from a peak of 6.9 % of GDP in 2007 to just 1.1 % of GDP in 2009 (Chart 6). The current episode thus contrasts with the two major previous episodes over the past 30 years in a number of important dimensions. First, not only is the severity of the decline more extreme (5.8 points of GDP, versus 3.2 and 3.7 %age points of GDP, respectively, in the previous two episodes), but the time frame over which it occurred has been more compressed. Of course, it is perfectly plausible that the current downturn will be more extended than just two years; both previous episodes had an early phase of sharp adjustment, followed by a second leg down a few years later. For this reason, it is perhaps more

Low commodity prices and suddenly weak global demand have pushed goods price inflation rates down sharply, and this is

_______________________________________________________________________________________
AT Capital Weekly Update 15

01 February 2009
appropriate to compare the projected decline in the current episode (of 5.8 %age points of GDP) with the declines in the first two years of the previous episodes of 1.6 %age points between 1981 and 1983, and 3.2 %age points of GDP between 1996 and 1998.

AT CAPITAL RESEARCH
all regions in 2008 and, most likely, in 2009. The most extreme swing underway, however, is in flows to Emerging Europe, which are estimated to contract from about 13 % of GDP (USD393 billion) in 2007 to 1 % of GDP (USD30 billion) in 2009. Such a swing is unprecedented in scale, and helps explain why financial strains have been most acute, and are likely to remain so, across Emerging Europe.

Second, the scale of the boom in private flows to emerging economies in the upswing of the current episode was unprecedented. At their peak (in 2007), net inflows amounted to almost 7% of GDP, or USD 929 billion. This contrasts with a previous peak of 5.7% of GDP in 1996, or USD320 billion. Third, the relationship between net private sector flows and the overall current account deficit of our sample of 28 emerging market countries was very different in this episode. Between 1979 and 1990 net flows and current account balances broadly matched one another. From 1990 through 2002, net flows exceeded the current account deficit (reflecting a steady accumulation of foreign assets by both the private and public sectors in emerging economies), although they tended to move in line with one another. After 2002, however, the relationship between the aggregate current account balance of emerging economies and net private capital flows changed dramatically. As a whole, emerging economies moved into sizeable current account surplus, at the same time that net private capital inflows soared. Emerging economies were thus dramatically “overfinanced”, with this degree of over-financing exceeding 10% of GDP in 2007. The offset to the substantial flow of capital into emerging economies was thus an even greater outflow of capital from emerging markets back into mature markets (including reserve accumulation), helping to sustain the rally in fixed income instruments there that has more recently turned to disaster. Moreover, the buildup in foreign exchange reserves in emerging economies was not fully sterilized, and this contributed to very rapid rates of growth of money and credit in most emerging economies after 2002, most notably in Emerging Europe. Fourth, the regional pattern of flows is important (Chart 7). In the previous two expansion phases (1978-81 and 1990-96) there was a dominant region that attracted more flows than other regions. In the early 1980s, the dominant region was Latin America. In the early 1990s, lending to Latin America surged once again, although this was tempered by the Mexican crisis in 1994-95 and its aftermath. Following that, lending surged to Emerging Asia, setting the stage for the Asian crisis in 1997-98. This time around, lending surged to all regions in 2007, before contracting sharply to

There are also a number of interesting comparisons in financial variables between the current episode and the last extreme capital flow downturn, of 1996-99. In the downturn of the 1990s, there were regular currency crises which, in turn, often developed into debt crises, in large part because of the impact of devaluations on the local currency value of foreign currency debt. In the current phase of difficulties, currency depreciations have been less significant (at least to date), or where they have occurred (as in the case of Korea) have been far less traumatic than was the case in 1997-98. On the other hand, equity market weakness has been more pervasive, as the stresses resulting from high levels of corporate sector leverage (both domestically and externally financed), falling commodity prices, and weakening export markets have become more evident. Net bank lending to our sample of 28 emerging economies peaked at USD 410 billion in 2007, and fell by about USD 240 billion, to USD 167 billion in 2008. A similar pace of decline is in prospect for 2009, which would lead to net outflows (payback) from borrowers in emerging economies to banks of about USD 61 billion for the year as a whole. Commercial bank debt was repaid on a sustained basis between 1998 and 2002. Until 2002, net lending by banks had quite closely tracked the overall current account deficit of emerging economies, with net repayment during 1998-2002 coinciding with the emergence and then the rise in current account surpluses of the emerging markets. Since then, however, bank debt has soared, even as the current account position of emerging economies improved (Chart 8).

_______________________________________________________________________________________
AT Capital Weekly Update 16

01 February 2009
Chart 8: Net External Financing of Emerging Economies

AT CAPITAL RESEARCH

The pattern of the shift in bank lending flows is common across the major groups of emerging economies, although the magnitudes are most severe in Emerging Europe and Emerging Asia: • Net banking flows into Emerging Europe peaked at USD 217 billion in 2007, of which USD 107 billion were accounted for by flows into Russia. In 2008, these flows fell to USD 123 billion (of which Russia accounted for USD28 billion). In 2009, net repayments by Emerging Europe borrowers to commercial banks of USD 27 billion are expected, with Russia repaying USD 49 billion. • Net banking flows into Emerging Asia were USD 156 billion in 2007, but fell to just USD 30 billion in 2008. In 2009, net repayments to banks of USD 25 billion are forecast. By country, the bulk of the adjustment between 2007 and 2009 is accounted for by Korea (where net flows are forecast to fall by USD 87 billion), China (down USD 52 billion), and India (down USD 32 billion). • Among regions, the magnitude of the banking shock is least severe for Latin America, where net inflows of USD 31 billion in 2007 and USD 9 billion in 2008 are forecast to become net outflows of USD 12 billion in 2009.

Ifty Islam Managing Partner ifty.islam@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 17

01 February 2009

AT CAPITAL RESEARCH
Market news
• Government to allow private investors to raise fund through debt market ICB to buy BD Welding stakes Grameen Mutual Fund floats 3rd scheme this year Beximco Pharma to raise BDT 4.6bn (USD 67.1mn) from GEM

Stock Market Weekly
DSE performance: 52 weeks

• • •

DSE performance: 30 days

Regional stock market performance (last week) )

Market summary
Index performance Opening of this week Closing of this week Change within a week (%) Change within a week (Point) Capitalization and turnover Number of Trading Days Market Capitalisation (USD bn) Total Turnover (USD mn) Daily avg. Turnover (USD mn) Total Volume (mn) Daily avg. Volume (mn) Weighted avg. P/E Ratio* This Week Last Week % Change *Weighted on Market Cap. 17.06 17.34 -1.6% DSE General Index 2695.58 2671.06 -0.9% -24.5 This Week 5 14.87 200 40.03 119 24 Issues Advanced Declined Unchanged Not Traded Last Week 5 14.80 209 41.75 124 25 This Week 144 121 3 31 DSE 20 2,199.3 2,189.2 -0.5% -10.1 % Change

Valuation snapshot
Aug-08 19.08 10.96 49.92 39.11 17.85 17.81 23.17 45.08 41.44 16.16 25.46 8.36 23.97 20.57 19.05 15.74 Sector P/E Sep-08 Oct-08 Nov-08 18.24 15.62 15.62 10.34 10.32 8.91 43.93 41.76 32.17 41.36 40.8 31.94 19.44 17.09 14.77 20.2 19.14 16.29 24.77 23.12 17.69 55.48 28.93 21.42 45.64 47.89 33.96 16.16 14.18 14.18 33.95 32.2 23.32 8.08 9.97 7.32 28.45 30.25 26.26 22.87 23.55 18.74 19.89 18.44 14.87 15.45 14.55 12.43 Source: Dhaka Stock Exchange

0.50% -4.1% -4.12% -4.06% -4.06% Last Week 104 158 2 29

Banks Cement Ceramic Engineering Food & Allied Fuel & Power Insurance Investment IT Jute Miscellaneous Paper & Printing Pharmaceuticals Service & Real Estate Tannery Textiles

_______________________________________________________________________________________
AT Capital Weekly Update 18

01 February 2009

AT CAPITAL RESEARCH
The NBFI sector rose by 6.7% this week. The Bangladesh Leasing and Finance Companies Association (BLFCA) met the Finance th Minister on 25 January this year and made the following demands: • To reduce corporate tax rates which currently stand at 45% for Banks and NBFIs. Restoration of depreciation allowance for leased vehicles, machineries, plant and furniture which had been cancelled in financial year 2007 - 08.

Weekly Stock Market Commentary
The market remained relatively flat week on week, down only 0.8% following the steady decline over the previous 3 week. This however masked the intraday volatility in the market, which was likely a function of active trading by portfolio managers. Daily average turnover was down by 4.1% compared to last week. It has been reported that the large institutional portfolio managers have been sitting on the sidelines waiting for the market to reach the bottom of its current downtrend, with most of the activity being driven by retail investors – this view is supported by the evidence of low cap stocks seeing volatility in sectors such as IT, Foods and Engineering, which are often purchased by retail investors drawn by the small ticket stocks Since 1 January, 61 companies have declared their half yearly profits. Among them 43 have posted profits while 18 declared losses and 23 have reported higher profits compared to the corresponding period last year. Out of 297 issues, 161 advanced, 111 declined, 4 remained unchanged and 21 were not traded. Among the top ten gainers, all of them were from Z-list categories. Among the A-category stocks the largest risers included Apex Weaving, Aftab Automobiles and Monno Jute Stafllers. Last 4 weeks performance:
2850

As bank stocks continue to fall, we believe they are reaching attractive pricing levels.

2800

2750

2700

2650

2600

2550

The largest sector in terms of market capitalization - banks - fell by 2.9% this week. As we have discussed in earlier weeklies, we believe the sector will remain under pressure as: • Banks have released lower than expected 2008 full year earnings. • In 2009 Trade Finance earnings of banks are expected to remain under pressure, with commodities’ prices remaining low and remittance related banking revenues suffering as the recession deepens in the global economy. 19

_______________________________________________________________________________________
AT Capital Weekly Update

01 February 2009

AT CAPITAL RESEARCH
The third scheme of Grameen Mutual Fund One will be floated this year. AIMS of Bangladesh, the asset management firm of Grameen Bank, will float the minimum BDT 3bn (USD 43.57mn) scheme through an initial public offering (IPO) and a private placement. The 'Grameen Mutual Fund One' was registered under the Registration Act 1908 on May 09, 2001 and received an SEC registration on August 27, 2001. With a 15-year initial tenure, it is the first mutual fund that floats multiple schemes in Bangladesh. The face value per unit of the third scheme will be BDT 10 (US 14.52 Cents). Apart from Grameen's third scheme, the AIMS plans to launch its own second mutual fund targeting non-resident Bangladeshis (NRBs). Presently, 14 mutual funds are being traded on the Dhaka Stock Exchange. http://www.thedailystar.net/story.php?nid=73136 Beximco Pharma to raise BDT 4.6bn (USD 67.1mn) from GEM The Daily Star, Tuesday, January 27, 2009 Beximco Pharmaceuticals Limited (BPL) announced a subscription agreement with GEM Global Yield Fund Limited (GEM Global), USA to raise BDT 4.6bn (USD 67.1mn) by issuing its shares or warrants. The company decided to issue ordinary shares worth BDT 4.1bn and warrants worth BDT 0.5bn. The company intends to utilize the capital for its BMRE, diversification and working capital. The shares of the company will be issued under the variable pricing method at 90% of the average market value on the Dhaka Stock Exchange, whereas the warrants will be issued at BDT 200 per warrant/share. By 2010, Beximco Pharma expects to increase its turnover and net profit to BDT 10bn (USD 0.14bn) and BDT 2bn (USD 29mn), respectively. http://www.thedailystar.net/story.php?nid=73138

Stock Market News
Government to allow private investors to raise fund through debt market The Financial Express, Sunday February 1, 2009 The government will allow private investors who will invest in developing physical infrastructures to raise funds from the debt market. Different types of private entrepreneurs such as independent power producers (IPPs), telecom companies and the like will be able to raise long-term funds through bonds. In Bangladesh, banks and financial institutions predominantly finance projects. “In FY08, the amount of industrial term loans disbursed by commercial banks and non-banking financial institutions (NBFIs) stood at BDT 201.5bn (USD 2.9bn) compared to only BDT 6.9bn (USD 100.2mn) given out by new capital issues through private placements, public offerings, and right offerings in the capital market," according to a Bangladesh Bank report. The BB report also pointed out several supply and demand side weaknesses of the capital market. Lack of benchmark bonds and benchmark yield curve, limited interest of financial intermediaries and businesses are the major supply side problems while limited investor base, intermediaries with limited expertise in dealing with debt products and low confidence in corporate borrowers are the demand side problems. The debt market is still very shallow as trading of government treasury bonds started in December 2005 in the DSE, and until the end June 2008, eight debentures, 84 treasury bonds, and one corporate bond were traded in the country's capital market. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=57593 ICB to buy BD Welding stakes New Age, Thursday January 29, 2009 The Investment Corporation of Bangladesh (ICB) has signed a memorandum of understanding with five sponsor directors of Bangladesh Welding Electrodes, a listed company, to buy 3.6mn shares out of 10.4mn shares of the company. The sponsors will sell their holdings in the company outside the trading floor of the stock exchanges, subject to the approval of the Securities and Exchange Commission and other regulatory authorities. The sponsors and directors of BD Welding, which was listed with the stock exchanges in 1999, hold 48.1% stakes in the company, while institutions hold 6.9% stakes and the public owns 45% of the shares. The Chittagong-based company, which is being traded under the B category on the stock exchanges, mainly produces welding rods and industrial oxygen. http://www.newagebd.com/2009/jan/29/busi.html#5

Grameen Mutual Fund floats 3rd scheme this year The Daily Star, Tuesday January 27, 2009

_______________________________________________________________________________________
AT Capital Weekly Update 20

01 February 2009

AT CAPITAL RESEARCH
DGEN Performance LTM

DGEN Performance YTD

Turnover leaders (All figures in mn) BDT 1715 Beximco Pharma Shinepukur Ceramics 806 Limited BEXIMCO 689 Summit Power 501 Aftab Automobiles 414 Titas Gas 397 ACI Limited 298 Aims 1st M.F. 277 BATBC 270 Grameen One: Scheme2 266

Best performers* USD 25.1 11.8 10.1 7.3 6.1 5.8 4.4 4.1 4.0 4 Quasem Textile Quasem Silk Padma Printers Saleh Carpet Tulip Dairy & Food M. Hossain Garments Rangamati Food Beach Hatchery Ltd. Sreepur Textile Padma Cement % Change 65.6% 64.9% 47.4% 44.9% 40.6% 38.2% 35.5% 34.8% 32.3% 30.4%

Worst performers* BEMCO BSRM Steels Limited Atlas Bangladesh Sinobangla Industries Apex Tannery Fu-Wang Ceramic Miracle Ind. Al-Arafah Islami Bank Quasem Drycells Social Investment Bank % Change -16.5% -12.3% -10.4% -9.7% -9.36 -8.9% -8.8% -8.4% -7.6% -6.8%

Source: Dhaka Stock Exchange

*By closing price Source: Dhaka Stock Exchange

Market cap. by sector* Banks Pharmaceuticals Fuel & Power Insurance Miscellaneous Engineering Textile Foods Tannery Service & Real Estate IT Ceramics Paper & Printing Jute Total 52.6% 10.4% 12.2% 5.7% 3.0% 2.6% 2.1% 2.4% 1.5% 1.0% 0.5% 0.1% 0.1% 0.03% 100%
*As of November 30, 2008 S&P500 S&P500 Sensex NIKKEI225 KSE100 SSECI FTSE100 Hangseng DSE 1 0.609533 0.479296 0.137983 0.315464 0.843726 0.704434 0.161589 Sensex

Correlation with other indices* NIKKEI225 KSE100 SSECI FTSE100 Hangseng DSE

1 0.57751 0.245628 0.411735 0.610483 0.677905 0.193995 1 0.136849 0.245613 0.494904 0.526227 0.103366 1 0.09449 0.238387 0.110829 1 0.431538 0.509843 1 0.786434 1 1

-0.05588 0.035032 0.131261 0.143725 * Based on the last 86 months’ USD returns Source: AT Capital Research

Research Team
Ifty Islam Managing Partner ifty.islam@at-capital.com Mohammad Emran Hasan Senior Associate emran.hasan@at-capital.com

Syeed Khan Partner syeed.khan@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 21

01 February 2009

AT CAPITAL RESEARCH

Economics
Selected macroeconomic indicators
27-Jan-08 Forex reserves (USD mn) USD-BDT average rate Call money rate 5328.63 68.5800 19.17 20-Jan-09 5430.92 68.9499 9.48 27-Jan-09 5543.93 68.9010 9.33

Market news

IMF suggests tight monetary policy: Existing policy too expansionary to deal with soaring inflation BB warns govt. of hefty borrowing Shrinking global job market worries BB governor ADB to provide USD 2mn for micro-insurance FDI proposals decline

• • • •

Dec-07 Remittances (USD mn) Annual %age change 635.34 14.46

Dec-08 765.79 20.53 Nov-08P 1,816.50 9.31 Nov -08P 1297.47 13.37 Sep-08P 46.00 Dec-08P 538.81 8.96

2007-08 7,914.78 32.39

Nov-07 Imports (USD mn) Annual %age change 1,661.80 7.91

2007-08 21,629.00 26.07

Nov -07 Exports (USD mn) Annual %age change 1144.47 24.94

2007-08 14,110.80 15.87

The growth of credit to private sector has been strong, registering a year-on-year growth of 24.3% in November 2008

Sep-07 Current A/C Balance (USD mn) 20.00

2007-08 672.00

Dec-07 Tax revenue (USD mn) Annual %age change 524.12 26.59

2007-08 6,868.43 27.06

Source: Selected indicators by Bangladesh Bank, 28 January 2009

Latest Bangladesh Inflation Rates
Oct-08 General Inflation Food Inflation Non-food Inflation 209.31 7.26 226.88 8.08 186.13 5.95 Nov-08 207.14 6.12 223.98 6.68 184.95 5.25 Dec-08 204.90 6.03 220.64 6.83 184.29 4.76 Source: Bangladesh Bank

Source: Bangladesh Bureau of Statistics

Jisha Sarwar Senior Research Associate Jisha.sarwar@at-capital.com

_______________________________________________________________________________________
AT Capital Weekly Update 22

01 February 2009

AT CAPITAL RESEARCH
sector suffered significant pressure caused by rapidly rising costs of subsidies and other current expenditures. The central bank also suggested that the government intensify tax-collection efforts as earnings from customs duty is likely to slow down in the coming months due to falling value of imports resulting from commodity price declines in the international market. The BB report said growth in tax revenue fell short of target while expenditure increased forcing the government's bank borrowing to exceed BB's monetary target. During the first half, the total deficit financing was BDT 133bn (USD 1.93bn), of which BDT 90bn (USD 1.31) was from domestic sources that included bank financing of BDT 70bn (USD 1.02bn), while BDT 42.9bn (USD 0.62bn) came from foreign sources. According to the report, ADP (annual development programme) implementation rate was 24% in the first half of FY09, with priority given to implementation of projects in social and physical infrastructure sectors like electricity, gas and agriculture. "The possibility of export slowdown of RMG products is low due to Bangladesh's export concentration in the low-price and basic product segment of the apparel market in the advanced countries," the report said. However, exports of items such as shrimp, leather and leather goods, electronics, ceramic tableware and vegetables, might be hampered. The growth of credit to private sector was strong, registering a year-on-year growth of 24.3% in November 2008. "The monetary and credit growth requires careful monitoring in order to avoid the buildup of any excess demand pressure in the economy," the report said. Although the major share of private credit went to productive sectors, the share of agriculture was low (less than 7 %of total bank advances). http://www.thedailystar.net/story.php?nid=73512 Shrinking global job market worries BB governor The Financial Express, Friday January 30th, 2009 The apparent shrinking of the worldwide job market could turn out to be detrimental to the country's economy, Bangladesh Bank Governor Salehuddin Ahmed said on Thursday. "We are observing the situation closely," the central bank Governor said, "as many of the traditional destinations of expatriate workers are shutting their doors to foreign employees," he added, "either by stopping new recruitment or sending back the hired ones". He added that if this trend continues, it will have a negative impact on remittances and the overall economy. "So, this could mean a major setback to the export of manpower and the inflow of remittance to the country if these trends continue," Salehuddin said when asked whether the global financial turmoil could have a negative effect on the country's economy. The country’s manpower exporting industry is already suffering 23

Economic News
IMF suggests tight monetary policy: Existing policy too expansionary to deal with soaring inflation The Daily Star, Sunday February 1st, 2009 The International Monetary Fund (IMF) suggested that Bangladesh should adopt a tight monetary policy, stating that the existing policy is 'too expansionary' to deal with soaring inflation. Escalating food and fuel prices in the international market caused inflation in the country to go up, which averaged 10% in FY 08. "It will be more difficult to check inflation if oil and food prices rise further in the international market," stated Thomas R Rumbaugh, adviser to the Asia and Pacific Department of IMF. The IMF said Bangladesh's economy rebounded quite well in the second half of FY 08. A strong revival in domestic economic activity and rapid growth in garment manufacturing and remittances contributed to the country’s 6% GDP growth in FY 08. Rumbaugh said Bangladesh's monetary policy has been very expansionary in the last six months, adding that the budget for the current fiscal year is also expansionary, with the government making a significant upward adjustment in fuel prices recently. "Credit growth is a bit high and has reached 23-24% in recent times," the IMF senior official said, adding that the broad money circulation is also hovering at around 20%. According to Rumbaugh, the government needs to make an adjustment in the monetary policy to curb credit growth and inflationary pressure. He added that monetary policy should be reactive to inflation as further increases in international oil and food prices will cause pressure on the balance of payments and fiscal position. Rumbaugh stated that at present Bangladesh's balance of payment is in a good position. Bangladesh's medium term outlook is positive, Rumbaugh said, but inflationary pressure is a major challenge. Political uncertainty surrounding local and national elections is a short-term risk while dealing with climate change is a long-term challenge for Bangladesh, he added. http://www.thedailystar.net/story.php?nid=45937 BB warns govt. of hefty borrowing The Daily Star, Friday January 30th, 2009 Bangladesh Bank (BB) yesterday warned the government of excess bank borrowing and suggested three measures to help reduce "fiscal pressure", as the government’s borrowing from the banking system exceeded BB's target in the first half of the current fiscal year. The central bank recommended an increase in duties on imports of luxury goods and cuts in the government's unnecessary costs in the next six months. The BB also suggested that the government make an action plan to create some "fiscal space" to respond to any downturn in economic activities or external shocks stemming from the global recession. According to the Bangladesh Bank Quarterly Report published recently, during the first half of the current fiscal year, the fiscal AT Capital Weekly Update

_______________________________________________________________________________________

01 February 2009
from the global recession as a number of major recruiting nations, including Saudi Arabia, Malaysia, UAE, Qatar and Bahrain, have stopped hiring foreign workers for the time being. Nevertheless, expressing an optimistic outlook about the country's overall economic situation, the BB Governor observed that the export of RMG and other commodities are likely to remain unscathed. http://www.thefinancialexpress-bd.info/2009/01/30/57409.html ADB to provide USD 2mn for micro-insurance The Daily Star, Thursday January 29th, 2009 The Asian Development Bank (ADB) will provide a grant of USD 2mn to develop the micro-insurance sector in Bangladesh and help reduce the vulnerability of the poor from sudden losses in income. According to the ADB, around 20,000 people in Bangladesh are expected to directly benefit from the grant provided from ADB's Japan Fund for Poverty Reduction (JFPR). The grant will finance development of low-cost insurance services to protect the livelihoods of the poor, especially women, from risks such as accidents, illness, theft, and natural disasters. It will also fund an insurance awareness campaign and provide training for at least 50,000 rural poor households. Although microcredit is well-established in Bangladesh, microinsurance, while gaining in popularity, is still a relatively new concept. It is estimated that 93% of the country's total population has no access to insurance services. At least 20 microfinance institutions will undertake capacity training on micro-insurance operations to develop expertise in insurance underwriting, screening, financial management, product development and marketing. The Japan Fund for Poverty Reduction (JFPR) is an untied grant facility established by the Japanese government and ADB in May 2000. From an initial contribution of USD 90mn, the fund now stands at well over USD 360mn, of which USD 224mn has been committed. http://www.thedailystar.net/newDesign/newsdetails.php?nid=73417 FDI proposals decline The Daily Star, Monday January 26th, 2009 Foreign direct investment (FDI) commitments were very low in 2008 both in terms of value and the number of proposals, according to Board of Investment (BoI) data. In 2008 interested foreign investors only registered 13 projects worth USD 60mn with the BoI. Canada alone expressed interest to invest about USD 53mn in a project. About 141 projects worth USD 327mn were registered in 2007.

AT CAPITAL RESEARCH
Registration is merely an investment commitment by an interested investor, but not an actual investment. The number of foreign investment proposals registered with the BoI in 2006 was 166 worth USD 1,471mn, and 131 proposals worth USD 3.8bn were registered in 2005. http://www.thedailystar.net/newDesign/newsdetails.php?nid=72952

_______________________________________________________________________________________
AT Capital Weekly Update 24

01 February 2009

AT CAPITAL RESEARCH
people and operating 1,183 branches. However, the bank is losing its share to private banks led by the Islami Bank Bangladesh Limited (IBBL). Last year its operating profit stood at BDT 6.42bn (USD 93.2mn), which is 23% less than that of IBBL. Launched in 1984, the Islamic banking system has grown rapidly in Bangladesh where 90% of the people are Muslim. Deposits of the Sharia-compliant banks have grown from 21% to 24.4% of the total banking deposits, or BDT 347.30bn (USD 5.04bn), in the 2007-2008 financial year. During the same period deposits in the conventional banks grew by only 15 %, according to Bangladesh Bank data. As of June 2008, six private banks out of the country's 48 commercial banks were operating as full-fledged Islami banks. IBBL with its 196 branches handled 23% of the total USD 8.9bn in remittance sent by Bangladeshis working abroad in calendar year 2008. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=57486 Automated clearing house by June The Daily Star, Thursday January 29th, 2009 An automated clearing house, a system essential for electronic fund transfer, will be set up in the central bank by June. The Bangladesh Automated Clearing House will process cheques, credit and debit payment instruments with the help of magnetic ink character recognition and imaging technologies. The system is based on a centralized processing centre located in Dhaka with branches in seven other cities. The system will support both intraregional and interregional clearings. The government has been working with the United Nations Development Programme for introducing e-commerce in the country. A project called "Digital Signature: Methodology and Deployment in Bangladesh" is underway to build the digital payment systems. http://www.thedailystar.net/newDesign/newsdetails.php?nid=73402 Janata Bank's local office earns BDT 2.11bn (USD 30.65mn) profit The Financial Express, Tuesday January 22nd, 2009 A local office of Janata Bank Limited earned a record profit of BDT 2.11bn (USD 30.65mn) in 2008. The local office facilitated import and export businesses worth BDT 80bn (USD 1.16bn) and BDT 35.7bn (USD 0.52bn) respectively, accounting for 77% and 47% of the total earnings of the bank. The bank also performed well in other areas – deposits increased by 111%, income without interest grew by 103%, recovery of

Sector News
Agriculture
Bengal Meat suffers from global economic crisis The Daily Star, Sunday, February 1, 2009 Bengal Meat, the country’s only meat processing company, has been hit by the global economic recession, as plunging demand has caused the company to suspend mutton exports. According to an official of the company, mutton exports to Dubai’s stores have been suspended since November. The company used to export 1 tonne of mutton a day to Dubai. The BDT 350mn (USD 5.1mn) plant can process 1,000 goats and 100 cattle-heads, but a decrease in global demand coupled with a disruption in its supply chain have affected its capacity utilization. Set up in 2006, Bengal Meat is the first company to export meat from Bangladesh, and has ensured Australian standard quality in its plant. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57591 Bumper yield of mustard expected in Pabna : 30,000 hectares likely to produce 36,000 MT The Daily Star, Saturday, January 31, 2009 Farmers and officials from the Agriculture Extension Department (AED) are hopeful that there will be a bumper production of mustard in Pabna (see footnote) this year following a good yield of the crop last year. A good yield of mustard in Pabna last year inspired the farmers in the area to cultivate the crop in a large scale this year. This year farmers have cultivated mustard on over 30,000 hectares of land in the district, which is a little more than the cultivation target fixed by the AED while filed reports show that the rate of production will be much higher than the target of 30,000 MT. The area of cultivation would be more if untimely rain during the cultivation period of the crop did not hamper mustard cultivation at the primary stage. http://www.thedailystar.net/story.php?nid=73712
1

Banking
Sonali and Janata banks to introduce Islami banking in March The Financial Express, Saturday January 31st, 2009 State-owned banks - Sonali and Janata – plans to introduce Islamic banking in March this year. The central bank has approved the introduction of Islamic banking operations in five branches each for Sonali and Janata Banks. Sonali bank, which was converted to a private limited company in late 2007, is the largest bank in the country, employing 22,181

1

_______________________________________________________________________________________
AT Capital Weekly Update 25

Pabna is a city in the west-central region of Bangladesh and the major city of Pabna District. It is located on the Padma river (Ganges) and has a population of about 138,000.

01 February 2009
targeted defaulted loans increased by 162%. The total recovery of the branch was more than double than the last two years. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=57019

AT CAPITAL RESEARCH
http://www.thedailystar.net/newDesign/newsdetails.php?nid=73398

Infrastructure & Energy
Offshore blocks to be awarded to IOCs with 'due diligence' The Financial Express, Sunday February 1, 2009 The government will consider awarding the offshore blocks to the successful bidders selected through last year's bidding round. The newly appointed Adviser to the Prime Minister stated that the government is keen to expedite offshore oil and gas exploration to meet the growing energy needs of the country. Awarding of the nine offshore blocks in the country is awaiting a decision by the government following the selection of two international oil companies (IOCs) as the successful bidders in July 2008. The caretaker government invited bids for offshore exploration in February 2008 after dividing its sea territory in the Bay of Bengal into 28 blocks. The US oil and gas giant ConocoPhilips was selected for eight offshore blocks and Irish Tullow for one block by the state-owned Petrobangla during the bidding. State-run oil and gas company, Petrobangla made the selection after evaluating the bids from seven companies including Chinese giant CNOOC Ltd, Australia's Santos Ltd and the Korean National Oil Corporation. The caretaker government had then committed to signing production-sharing contracts (PSCs) with the winning companies by October 2008. If awarded, ConocoPhillips would be given up to nine years time for exploration in the eight deep-water blocks and Tullow would have eight years for the single shallow-water block. The companies have pledged to invest a total of USD 492.52mn in exploration. http://www.thefinancialexpress-bd.com/2009/02/01/57641.html DPDC project to bring consumers under pre-paid metering network The Financial Express, Sunday February 1, 2009 The Dhaka Power Distribution Company (DPDC) has planned a BDT 3.73bn (USD 54.2mn) project to bring its consumers under a pre-paid metering network within the next couple of years. "We have initiated a mega pre-paid metering project (phase-1) with the funding support from different donors including Asian Development Bank (ADB) and Korea International Cooperation Agency (KOICA)," said a senior DPDC official. According to the plan, after the meters are supplied to the clients, the DPDC will adjust the installation cost with individual users' electricity bills within a year. After officially becoming a public limited company in July 2008, the DPDC has taken various steps to upgrade its electricity distribution systems, reduce its systems losses and improve its service delivery systems. The company's average systems loss declined to 19.81% at the end of December 2008 from 22.89% at the start of its operation. The company posted a net operating profit of nearly BDT 288.92mn (USD 4.2mn) in November last year. At present, the DPDC alone purchases around 23% of

Ceramics
Recession creeps into ceramic tableware th The Daily Star, 29 January 2009

Local ceramic tableware manufacturers are affected by the global financial crisis as their exports have been declining rapidly for the last few months. “Our exports came down by around 20% in December compared to the previous month,” said Iftakher Uddin Farhad, chairman and managing director of FARR Ceramics Ltd. FARR Ceramics exported BDT 26mn (USD 0.38mn) worth ceramic tableware in October 2008, which fell to BDT 21.9mn (USD 0.32mn) in November and to BDT 14.8mn (USD 0.21mn) in December. According to statistics from Export Promotion Bureau (EPB), Bangladesh exported ceramic tableware worth BDT 245mn (USD 3.56mn) in September 2008, which declined to BDT 210mn (USD 3.05mn) in October and BDT 166mn (USD 2.41mn) in November. However export earnings from ceramic tableware in the JulyNovember period of the current fiscal year was BDT 70mn (USD 1.02mn) higher than that of the same period in FY 08. Bangladesh's export markets include the UK, the USA, Spain, Italy, Australia, New Zealand, Norway, Sweden, Russia, the UAE, Denmark, Germany, France, Mexico, Turkey and the Middle East countries. Shinepukur Ceramics is one of the two largest manufacturers of ceramic tableware in the country, with the second being Monno Ceramics. Shinepukur exported USD 18mn worth ceramic tableware in FY 08. The company accounts for about half of the total tableware exports from Bangladesh. In addition to the global turmoil, the industry is facing increasing challenges with the rise in prices of raw materials. The industry needs to import all the raw materials required for producing ceramic tableware. The total tax for import of the raw materials stands at 30 % that includes 7 % import duty and 15 % VAT (value added tax).

_______________________________________________________________________________________
AT Capital Weekly Update 26

01 February 2009
electricity sold by the Bangladesh Power Development Board (BPDB). http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57653 Bapex eyes 2.5tcf new gas in 7 years The Daily Star, Sunday February 1, 2009 Bangladesh Petroleum Exploration Company (Bapex) aims to discover around 2.5 trillion cubic feet (TCF) gas and expects to provide an extra 200mn cubic feet gas per day (mmcfd) within the next seven years. By 2015-16, Bapex plans to drill 15 exploration wells and expects to find gas in at least six instances. Since its inception in 1989, Bapex was given only eight projects till last year, almost entirely leaving exploration and development of the oil and gas sector to foreign companies. As a result, Bapex now produces a paltry 40mmcfd gas, while four foreign companies -- Chevron, Cairn, Tullow and Niko -- produce around 700mmcfd. When it started producing gas from two small fields of Fenchuganj and Salda, it was offered a tariff of only BDT 7 (US 10.2 Cents) per thousand cubic metres, while the foreign oil companies receives a tariff of BDT 200 (USD 2.9) for the same amount. In August 2008, the government, responding to a proposal from Bapex, increased its gas sales tariff to BDT 25 (US 36.3 Cents) per thousand cubic metres effective from July 2008 and approved its seven-year investment of BDT 32bn (USD 464.8mn). http://www.thedailystar.net/story.php?nid=73804 Rental power the best short term solution: Aggreko The Daily Star, Friday January 30, 2009 Leading international rental power provider Aggreko believes that Bangladesh will have to rely on the rental power system as the best short-term solution for the next few years until it can bring some large power projects. Debajit Das, managing director (Asia) of UK based Aggreko, said he sees inevitable load shedding of 700MW to 2000MW this year even after the addition of 742MW new generation capacity. Aggreko has been operating a 40MW diesel-based rental power plant in Khulna since June 2008. As the government seems to be highly committed to ensuring smooth irrigation for the agriculture sector, it might consider installing a rental power system for a period of six months to cover the irrigation season. The Khulna plant is Aggreko's first venture in Bangladesh. The British company is generating 6,000MW of power around the world. Aggreko's power generator uses Cummins engine, but the whole package is designed and developed by the company itself. As the design follows a “plug and play” policy, installing a plant for Aggreko is just a matter of mobilising equipment from one place to another. http://www.thedailystar.net/story.php?nid=73549

AT CAPITAL RESEARCH
Bangladesh to seek regional cooperation in energy sector The Financial Express, Wednesday January 28, 2009 State Minister for Foreign Affairs Dr Hasan Mahmud, who attended the third SAARC ministerial meeting on energy cooperation in Colombo on January 27, said Bangladesh will seek regional cooperation particularly in the renewable energy sector. He said a decision would try to be reached regarding a consensus on the regional approach for setting up hydropower plants among these countries. At the ministerial, he would project Bangladesh's position on various issues, including the setting up of a SAARC energy network, fixation of imported fuel and the saving of energy. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57245 BPC at last earns profit after ten years The Financial Express, Tuesday January 27, 2009 The state-owned Bangladesh Petroleum Corporation (BPC) has earned some profit in the last two consecutive months of trading after being in the red for the last ten years. BPC's profit in November, 2008 was BDT 1.54bn and BDT 1.50bn in December 2008. Despite last two months' profit the corporation is counting losses of around BDT 15bn in the current fiscal years' trading since July 2008. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57127 Chevron to re-evaluate Bibiyana gas field The Financial Express, Monday January 26, 2009 Chevron will conduct a re-evaluation of the Bibiyana gas field to delineate its latest reserve position. According to the state-owned hydrocarbon corporation Petrobangla, an approval will be given in this regard to the US-based international oil company (IOC) within this week. The decision for re-evaluating came amid a debate over the level of gas extraction from the country's second largest gas field, where reserve was initially estimated at about 2.4 trillion cubic feet (TCF) after its discovery in 2000. A group of energy experts in Petrobangla is opposed to gas production of more than 500mn cubic feet a day (MMCFD), arguing that this might lead to an early death of the gas field. On the other hand, another group of Petrobangla experts favour increasing the production level to more than 500 MMCFD. Petrobangla director Muktadir Ali, however, said the move to re-evaluate the reserve is undertaken as part of the gas purchase and sales agreement (GPSA) signed with the IOC. The gas production at the Bibiyana gas field began in February 2007 with a daily production of 200 MMCFD. There was a plan that production would be increased to 600 MMCFD within a few years to meet the growing demand. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=57058

_______________________________________________________________________________________
AT Capital Weekly Update 27

01 February 2009 Pharmaceutical
Beximco Pharma down in London trade The Daily Star, Friday, January 30, 2009

AT CAPITAL RESEARCH
are almost equal to Mumbai's."We have a demand for 100,000 units of flats a year. But the realtors can provide only 8,000-9,000 flats annually," Probal said."The demand for new flats is still very high. So naturally, I don't see any chances for overheating or a sharp downturn in the sector in the coming years," he added. Probal said over the past few months, sales of high end flats have declined in Dhaka. He further stated that the group's 453 member companies have over 2500 housing projects under construction, but together they "have a very small amount of exposure to the banking sector."He also said hard-savings rather than bank loans are fuelling the housing prices in the city. "For years apartment sales in both Dhaka and Chittagong have been driven by the NRBs (Non-resident Bangladeshis) and the country's growing middleclass," he said. http://www.thefinancialexpressbd.info/search_index.php?page=detail_news&news_id=57407

Technology
Prices of global depository receipts (GDRs) issued by Beximco Pharmaceuticals fell by around 47% in the Alternative Investment Market of the London Stock Exchange (LSE) since September 1st 2008. Each GDR of Beximco Pharmaceuticals closed at GBP 13.5 st on January 28, down from GBP 25.5 on September 1 2008, according to the LSE website. However, the company, one of the leading drug manufacturers in Bangladesh, is among some globally renowned companies that are experiencing price-drops, as a result of the ongoing financial meltdown. However, Beximco Pharma has been performing well in the Bangladesh stock markets. Beximco started trading GDRs in the Alternative Investment Market in the London bourse on October 21st, 2005. In the first phase, the company raised around BDT 1.4bn (USD 20.33mn) from international institutional investors by issuing 20mn GDRs. In June 2006 the company raised GBP 6.5mn by issuing an additional 8.2mn GDRs. The profit margin of the pharmaceutical company has been declining since 2005 mainly due to rising prices of raw materials and higher competition both in the local and international markets. http://www.thedailystar.net/story.php?nid=73516 Digital Bangladesh pledge rings again: Govt purchases may go online th The Daily Star, 28 January 2009 The major promises made by the ministers at the inauguration of the BASIS Softexpo-2009 included introduction of the e-payment system, e-governance, along with introducing an ICT curriculum at the secondary level of education. Finance Minister AMA Muhith said all government purchases should go through online payments or e-commerce to ensure transparency. 'Softexpo' is a yearly event of the Bangladesh Association of Software and Information Services (BASIS) that aims to showcase products and services by local and foreign software developers. The US, Saudi Arabia, Hong Kong, Singapore, Japan, South Korea, Sri Lanka and Russia are also showcasing their products and IT enabled services at Bangladesh China Friendship Conference Centre. Bangladesh's software industry has a less than 1 % market share in the USD 300bn global market. The country exported software and IT enabled services worth USD 25mn in 2008. The export target of IT-enabled services of USD 30mn by 2009 did not satisfy Commerce Minister Faruk Khan. He said the export target could not be set higher due to a lack of government support. http://www.thedailystar.net/story.php?nid=73220

Real Estate
Realtors rule out central bank's fear for housing price bubbles The Financial Express, Friday January 30, 2009 The central bank has started monitoring the country's real estate prices to prevent a "bubble-burst" in the housing sector that may drag down the banking sector. The Real Estate and Housing Association of Bangladesh (REHAB) stated that a team from Bangladesh Bank led by a deputy director has been assigned to monitor real estate prices and the sector's exposure to banks.

Telecoms
Telecoms watchdog made all too mighty: Ordinance passed skirting ministry's opposition, existing laws th The Daily Star, 29 January 2009 The caretaker government on December 22 approved an ordinance amending the Telecom Act, 2001 bypassing the

REHAB president Tanvirul Haq Probal, however, ruled out any possibilities of a housing "bubble" or "over-heating" of the sector, although he agreed that housing prices in some parts of the city AT Capital Weekly Update

_______________________________________________________________________________________
28

01 February 2009
telecoms ministry and in contradiction with existing laws, making BTRC very powerful. The approval appears surprising as earlier that month the finance ministry rejected BTRC's proposal to amend the Act to make it more powerful and financially independent. The finance ministry observed that many of the proposals violate the constitution. Telecoms ministry sources say in the all inter-ministerial meetings the ministry officials stood against the BTRC proposals. But the commission had it approved apparently by convincing the Ministry of Law and other authorities concerned, they add. Finance ministry insiders say the new judicial power of BTRC officials enacted in the ordinance was beyond their knowledge. Regulatory Reforms Commission (RRC) Chairman Dr Akbar Ali Khan said the ordinance should be discussed in parliament. "The concerned parliamentary committee should scrutinise the ordinance whether it is truly good for the country," he added. Please refer to the following link to see some salient features of the amendment to the Telecommunication Act, 2001 http://www.thedailystar.net/newDesign/newsdetails.php?nid=73391 Private landline operators get financial concessions The Daily Star, 27th January 2009 The telecom watchdog officially announced financial concessions, including a 50% reduction in yearly licence fee, for private landline operators. The yearlong persuasion for a respite from the financial burden as per the licence agreement has partially been resolved after a meeting between Bangladesh Telecommunication Regulatory Commission (BTRC) and Association of PSTN operators of Bangladesh (APOB). But, the APOB members said two major issues, including interconnectivity and fixing up a unique market tariff, are yet to be settled. Interconnection tariff is now a new dilemma for the landline operators. Industry insiders said mobile companies are reluctant to come up with rational revenue sharing. The PSTN operators have to pay BDT 0.4 a minute to the mobile operators and the same amount is charged when mobile operator's calls enter the PSTN network. After entering the market in 2005, the 11 private landline operators added only 0.5mn customers to their networks by the end of December 2008. Among the 11 private landline operators, Ranks Telecom Ltd is the market leader, followed by Dhaka Phone and Peoples Telecom. http://www.thedailystar.net/story.php?nid=73137

AT CAPITAL RESEARCH
Textiles
EPB moves on duty-free garment export to India The Daily Star, Thursday, January 29, 2009 The Export Promotion Bureau (EPB) is taking a number of initiatives to encourage apparel manufacturers to fully utilize the opportunity of exporting 8mn pieces of readymade garment (RMG) products to India a year under a South Asian Free Trade Area (SAFTA) agreement. Of the total quota, affiliated BGMEA members will get a 70 % share, while BKMEA members will have the rest. An apparel unit owner will be able to supplying as many as 0.2mn RMG pieces a year after submitting the required documents, including a confirmed irrevocable letter of credit. http://www.thedailystar.net/newDesign/newsdetails.php?nid=73404

_______________________________________________________________________________________
AT Capital Weekly Update 29

01 February 2009

AT CAPITAL RESEARCH
Managing Partner Partner Senior Advisor Senior Advisor Senior Research Associate Senior Associate Research Associate Research Associate Research Associate Research Associate Analyst Office Manager (880-2)-8155144, ext. 132 (880-2)-8155144, ext. 109 (880-2)-8155144, ext. 108 (880-2)-8155144, ext. 113 (880-2)-8155144, ext. 119 (880-2)-8155144, ext. 120 (880-2)-8155144, ext. 128 (880-2)-8155144, ext. 135 (880-2)-8155144, ext. 138 (880-2)-8155144, ext. 133
(880-2)-8155144, ext. 130

AT Capital Team – Dhaka
Ifty Islam Syeed Khan Akther Ahmed Masud Khan Jisha Sarwar Mohammad Emran Hasan S Adeeb Shams Ahmad Sajid M. Emrul Hasan Abdullah-Al-Farooq Ohidul Alam Chowdhury Sohana Alam Seraj ifty.islam@at-capital.com syeed.khan@at-capital.com akther.ahmed@at-capital.com masud.khan@at-capital.com jisha.sarwar@at-capital.com emran.hasan@at-capital.com adeeb.shams@at-capital.com ahmad.sajid@at-capital.com emrul.hasan@at-capital.com abdullah.farooq@at-capital.com ohidul.alam@at-captial.com sohana.alamseraj@at-capital.com

(880-2)-8155144, ext. 132

AT Capital Team – North America/Asia
Zarif Munir Professor Jahangir Sultan, Ph.D. M. Nasim Ali Iqbal Hussain Robert Kraybill Senior Advisor Senior Advisor Senior Advisor Senior Advisor Senior Advisor zarif.munir@at-capital.com jahangir.sultan@at-capital.com nasim.ali@at-capital.com iqbal.hussain@doctors.org.uk robert.kraybill@at-capital.com

© Copyright 2008. Asian Tiger 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.

_______________________________________________________________________________________
AT Capital Weekly Update 30