Economic overview
Bangladesh has made great progress in reducing poverty and is now among the middle-income countries. However, the country, which has a very high population density, continues to be marked by marked social inequalities and a high percentage of poor people, especially in urban areas. Resource scarcity and the repercussions of climate change are also issues on the agenda in Bangladesh. Economic migration is the welcome alternative to an already saturated labor market.
Swiss development cooperation aims to improve the living conditions of poor and disadvantaged population groups. As part of the 2018-2021 cooperation strategy, Switzerland focuses its efforts on economic development, on increasing the efficiency of local governments and on improving the protection of economic migrants. In this context, certain aspects relating to good governance and human rights play an important role. Furthermore, by ensuring greater direct involvement of disadvantaged groups of the population, the aim is to increase social justice.
Thanks to the support of Switzerland, economic operators are more effectively interconnected. Easier market access increases the income of poor service providers and producers and opens up other economic possibilities. With its projects, the SDC supports the rural population, for example in the sectors of milk processing, fishing and crab farming. At the same time, it works in favor of a more equitable division of roles between men and women. In close collaboration with the private sector, vocational training programs especially help young people to find a job or to carry out a more qualifying activity, for example in the textile sector. By promoting social and insurance companies, Switzerland intends to involve the private sector more in the fight against poverty.
Main sectors of industry
Bangladesh’s economy largely depends on the agricultural sector, which accounts for approximately 17.2% of the total gross domestic product but employs half of the active population.
The manufacturing sector is markedly dominated by the production of clothing. It is a sector in constant growth, which in the last twenty years has seen the proliferation of numerous small and medium-sized enterprises, engaged in the export of those textile products (including mainly prepackaged items) which represent the first item of national exports. , especially towards the European and US markets. The protection of workers is extremely low, as seen on the occasion of the collapse of a factory in Dhaka in April 2013, which caused more than a thousand deaths among workers and led to the closure of 200 plants at risk.
Bangladesh’s textile industry, which includes knitwear and textile-clothing along with specialized textiles, is the main source of national export profits, surpassing India and China. In recent years, the availability of cheap labor has made Bangladesh the second largest garment producer in the world after China: with a market worth 20 billion dollars a year, the Bengali textile industry guarantees 80% of the exports of the country, of which 80 percent to the European Union, representing 1/5 of the country’s economy and four-fifths of its exports.
The government is attempting to diversify the base of the economy and exports by promoting industries such as information technology and agricultural transformation, but these programs have not had much results so far.
Other industries that have shown very strong growth include the pharmaceutical industry, shipbuilding, information technology, leather industry, steel, electronics, and metalworking.
Taxation for businesses in Bangladesh
Tax legislation imposes income tax at 25% for listed entities and 32.5% for unlisted entities. The corporate tax rate changes announced this year include:
- an additional increase of 2.5 per cent on the income of companies in the tobacco sector
- a reduction in the corporate income tax rate for companies in the ready-to-wear sector to 15 percent (from 20 percent)
- a further reduction of 1% (to 14%) for companies in the packaged clothing sector that have an internationally recognized green building certificate.
Some companies remain taxed at different rates. For instance:
- Non-bank banking, insurance and financial companies are taxed at 40% if listed and 42.5% if not listed.
- Cigarette manufacturers and mobile operators are taxed at 45 percent (before the above cigarette manufacturers surcharge)
- Companies engaged in the manufacture and export of knitwear and textile garments enjoy a reduced tax rate of 20%, and companies that manufacture or export jute products are taxed at 10%.
- Typically, a company’s export earnings are 50 percent exempt.
Investing in Bangladesh
Bangladesh’s GDP records growth rates of around 5-6% per year.
The major contributor to GDP formation is the service sector, but industry has also signaled a recovery.
Among the major opportunities are those in the infrastructure sector and in the industrial machinery sector, in particular as regards the textile and leather processing sectors.
The growth of the middle and upper-middle class leads us to advise our companies also to take action in the field of consumer products.
When it comes to foreign investment, a rather liberal policy is in force. Foreign investments are encouraged and are equated to local investments in fiscal and import / export policies.
As a rule, prior authorization is not required, foreign ownership is allowed, there are no restrictions on the repatriation of invested capital and dividends and the risk of expropriation is limited.
In favor of decisions to invest it should be considered that the country has a vast base of young and low-cost workforce, on an internal market of approximately 160 million people and on the vast Asian basin thanks to its geographical position.