Business Growth in BD Slows Amid Rising Costs and Uncertainty

Industry experts argue that while the country benefits from a large and growing workforce, high costs of financing and inconsistent energy supply are impeding the expansion of businesses.

Zakir Hossain Nayan, Convener of the Anti-Discrimination Business Forum at the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), explained to UNB that local businesses are struggling under the weight of high interest rates and the depreciating value of the Bangladeshi Taka against the US Dollar.

“Due to rising inflation and income limitations, people have scaled back consumption. This has had a significant impact on internal trade, especially in July and August of last year, though there are signs of recovery now,” Nayan noted.

He pointed out that many banks are grappling with a liquidity crisis, a result of mismanagement in previous government policies that allowed businesses with political connections to secure large loans. This has left several banks either unwilling or unable to offer new loans, creating a cautious environment for business investment.

Given these conditions, Nayan predicted that business growth would remain sluggish through the second half of 2024. However, he acknowledged signs of improvement, citing the government’s recent injection of funds into the banking sector, easing of the dollar crisis, and a downward trend in inflation.

Despite these challenges, Bangladesh's export sector remains relatively strong, especially in textiles. Nayan shared that garment exports are expected to increase by 10-15% in 2025, a resilient performance even amid ongoing disruptions in the sector.

Focus on Economic Reforms and Export Growth

Taskeen Ahmed, President of the Dhaka Chamber of Commerce & Industry (DCCI), expressed concern over the country’s economic performance, with GDP growth in the first quarter of the current fiscal year at only 1.8%, and the manufacturing sector growing by a mere 1.43%. He emphasized the urgency of addressing the nation’s economic vulnerabilities, particularly as Bangladesh prepares to graduate from the Least Developed Country (LDC) status in 2026.

To tackle these challenges, Ahmed called for a comprehensive approach that includes long-term access to affordable credit, skill development in the small and medium enterprise (SME) sector, and greater investment in infrastructure to attract foreign direct investment (FDI). He also recommended expanding free trade agreements to boost exports to the Middle East and South Asia.

Ahmed further stressed the importance of diversifying Bangladesh’s export base beyond the ready-made garment (RMG) sector. Key industries such as pharmaceuticals, leather goods, agro-processing, semiconductors, light engineering, and information technology present untapped potential. He urged the government to prioritize these sectors as part of a "Smooth Transition Strategy" (STS), a roadmap for navigating the challenges of an LDC exit.

Garment Sector’s Resilience and Ongoing Struggles

Khandoker Rafiqul Islam, former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), noted that the garment sector has largely met its export targets in recent months, thanks to full operational capacity. However, he cautioned that sustaining this growth will be difficult without addressing the ongoing challenges of high costs and an unreliable energy supply, both of which are straining the domestic textile sector.

Economic Indicators and PMI Report

The latest Bangladesh Purchasing Managers’ Index (PMI) report showed a modest slowdown in economic expansion, with the index dropping 1.1 points to 64.6 in February. The construction and services sectors, in particular, exhibited weaker growth, while agriculture and manufacturing continued to expand at a faster pace.

The report, developed by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange, with support from the UK Government and technical assistance from the Singapore Institute of Purchasing and Materials Management (SIPMM), offered a mixed picture of Bangladesh's economic health. While agriculture saw its fifth consecutive month of expansion, manufacturing posted its sixth month of growth, signaling resilience in key sectors. However, slower growth in construction and services raised concerns about broader economic momentum.

M Masrur Reaz, Chairman and CEO of Policy Exchange, commented, “The PMI readings indicate sustained growth in exports and agriculture, while construction and services face challenges. Business confidence remains fragile due to sluggish demand, energy disruptions, and ongoing political unrest.”

Reaz warned that a sustained recovery will require not only improvements in the business environment but also a political consensus on the election roadmap, enhanced law and order, and the swift implementation of necessary economic reforms.

The Path Forward

As Bangladesh grapples with a complex mix of economic and political challenges, business leaders and economists alike stress the need for strategic reforms, investment in key sectors, and a stable political environment to fuel the nation’s long-term growth. Without these changes, experts caution, Bangladesh risks losing its competitive edge in a rapidly evolving global marketplace.