INTERNATIONAL DEVELOPMENT GROUP

Bangladesh Country Report – Focus on Construction Sector

The information contained herewith is for general information only and not to be construed as advice of any kind. Accordingly BCA does

not: Make any warranty, express or implied, regarding the accuracy, correctness, completeness or use of any of the information depicted within this report. BCA will also not assume legal liability for the use of any such information or acts or omissions committed as result of

the use of this information.

General country information

Europeans began to set up trading posts in the area of Bangladesh in the 16th century; eventually the

British came to dominate the region and it became part of British India. In 1947, West Pakistan and

East Bengal (both primarily Muslim) separated from India (largely Hindu) and jointly became the new

country of Pakistan. East Bengal became East Pakistan in 1955, but the awkward arrangement of a

two-part country with its territorial units separated by 1,600 km left the Bengalis marginalized and

dissatisfied. East Pakistan seceded from its union with West Pakistan in 1971 and was renamed

Bangladesh. A military-backed, emergency caretaker regime suspended parliamentary elections

planned for January 2007 in an effort to reform the political system and root out corruption. In contrast

to the strikes and violent street rallies that had marked Bangladeshi politics in previous years, the

parliamentary elections finally held in late December 2008 were mostly peaceful and Sheikh HASINA

Wajed was elected prime minister. About a third of this extremely poor country floods annually during

the monsoon rainy season, hampering economic development.

Population 161,083,804 (July 2012 est.)

Major cities - population:

DHAKA (capital) 14.251 mill ion; Chittagong 4.816 million;

Khulna 1.636 mill ion; Rajshahi 853,000 (2009)

(Source: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html) GDP

(Source: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html) Per Capita income

(Source: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html)

GDP (purchasing power parity):

$282.5 billion (2011 est.)

country comparison to the world: 44 $265.7 billion (2010 est.) $249.8 billion (2009 est.) note: data are in 2011 US dollars

GDP - per capita (PPP):

$1,700 (2011 est.)

country comparison to the world: 194

$1,600 (2010 est.)

$1,500 (2009 est.)

note: data are in 2011 US dollars

Economic Forecast:

GDP growth Growth will continue to be underpinned by the steady expansion of private consumption growth and

investment. The main determinants of private consumption growth in the forecast period will be the

performance of the agricultural sector, together with the remittances from the country’s diaspora and

from Bangladeshis working abroad. Although agriculture will account for less than 20% of GDP at

factor cost, it will continue to be the country’s largest employer and the main source of income for

around one-half of the working population. The agricultural sector is expected to expand at an annual

rate of 3.8% in the forecast period, compared with 4.4% a year in 2006/07-2010/11.

GDP growth on a factor-cost basis will continue to be driven by services and industry. Services will

continue to account for around 50% of GDP, while industry will contribute about 30%. Industrial output

growth is expected to average 7.7% a year in the forecast period. Textile and clothing manufacturing

will remain the largest contributor to expansion in industrial output. Textile exporters will continue to

benefit from preferential EU import rules during the next five years. Since January 2011 clothes and

other finished goods made in Bangladesh (and other least-developed countries) have been granted

duty-free access to the EU if their imported components do not exceed 70% previously, duty-free

access was granted to only goods with a maximum imported content of 30%. The change has given

Bangladesh an advantage over its main competitors, notably China, Pakistan, India and Sri Lanka, as

these countries’ goods are liable for duty in the EU because they are no longer classified by the UN

as least-developed nations. The services sector is expected to grow at a fairly rapid pace as the

government continues to focus on developing Bangladesh’s outsourcing capabilities, including call

centres.

(Source: Country report April 2012, Economist Intelligence Unit) FDI inflow

i. Inflows of Foreign Direct Investment:

There was an inflows of $666m foreign direct investment in 2007 which raised significantly in 2008 to $1086m. As of 2010, inflows of foreign direct investment recorded to $571m.

ii. Foreign and Joint Venture Investment:

In the year 2009-10 (February), there were 89 new foreign and joint venture investment projects registered to BOI which amount to $590m. The projects were invested to mainly in the service, engineering, clothing and agricultural sectors.

Sector-wise foreign and joint venture investment during 2010-2011*

(Source: http://boi.gov.bd/about-bangladesh/investment-and-trade/foreign-direct-investment-in-bangladesh) Government Bangladesh is a moderate, democratic and homogeneous country. It is a constitutional republic with a multi party parliamentary democracy. It received independence from West Pakistan on 26

March 1971

and on 16 December 1971; it celebrated Victory Day and commemorates the official creation of the state of Bangladesh. There are seven administrative divisions namely Barisal, Chittagong, Dhaka, Khulna, Rajshahi, Rangpur and Sylhet.

Constitution:

enacted 4 November 1972; effective 16 December 1972; suspended following coup of 24 March 1982; restored 10 November 1986; amended many times

Executive branch:

chief of state: President Zillur RAHMAN (since 12 February 2009) head of government: Prime Minister Sheikh HASINA Wajed (since 6 January 2009) cabinet: Cabinet selected by the prime minister and appointed by the president

(For more information visit the World Leaders website ) elections: president elected by National Parliament for a five-year term (eligible for a second term); last election held on 11 February 2009 (next to be held in 2014) election results: Zillur RAHMAN declared president-elect by the Election Commission on 11 February 2009 (sworn in on 12 February); he ran unopposed as president; percent of National Parliament vote - NA

Legislative branch:

unicameral National Parliament or Jatiya Sangsad; 300 seats (45 reserved for women) elected by popular vote from single territorial constituencies; members serve five-year terms elections: last held on 29 December 2008; note - general elections must be held within 90 days of the expiration of the Parliament or by 29 March 2014 or earlier if Parliament is dissolved before its term expires election results: percent of vote by party - AL 49%, BNP 33.2%, JP 7%, JIB 4.6%, other 6.2%; seats by party - AL 230, BNP 30, JP 27, JIB 2, other 11

(Source: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html)

Construction Industry Info and Forecast

Construction Share of GDP and Growth

i. The construction share of GDP during the period of 2010-2011(p) is 8.18%.

Source: Partially extracted from

http://www.bbs.gov.bd/PageReportLists.aspx?PARENTKEY=94

ii. The construction growth rate during the period of 2010-2011(p) is 11.98%.

Source: Partially extracted from

http://www.bbs.gov.bd/PageReportLists.aspx?PARENTKEY=94

Growth Trends (Near term, medium and long term)

Over the years, Bangladesh economy has maintained a steady, stable growth performance amidst

episodes of natural calamities and external shocks; providing markets and entrepreneurs a

predictable policy environment of low uncertainty. With brisk output activities meeting strong domestic

and export demand, the economy is on course of near seven per cent FY11 real GDP growth. The

growth is projected to accelerate further over the medium term, to eight per cent by FY15. GNI per

capita is on an ascending order and poised to be on the threshold of the middle income country group

within 3-4 years. The fiscal and monetary policies of Bangladesh are cautiously and prudently drawn.

Fiscal deficits in recent years have remained below four per cent of GDP. Active monetary policy

management has kept core (non-food) inflation stable at low single digit levels; headline CPI inflation

(annual average) also remains at single digit level (slightly above eight per cent), comparing

favourably with immediate neighbours.

The country’s economy was impacted only mildly by the recent global financial crisis and economic

slowdown. A strong rebound in external trade (above 40 per cent growth in exports and imports so far

in FY11) has followed a brief spell of slowdown, during which time domestic consumption was upheld

effectively by microfinance and fiscal safety net for the poor.

Apparel exports have bounced back strongly, low labour costs retaining competitive edge even after

the recent wage hike. In the post-crisis surge, exports to new markets in fast growing Asian

economies and exports of newer items like marine vessels and IT are gaining momentum.

Agricultural output remains buoyant, supported by timely access to inputs and financing. Near self-

sufficiency in food-grain output (rice production meeting 96 percent of domestic needs) reduces risk of

food security.

Besides economic indicators, social and human development indicators have been improving

steadily. Poverty (upper poverty line, 2122 kilo-calorie food intake) declined from 57 to 49 percent

during the 1990s, and twice as fast in the next five years to 40 percent in 2005. The 38.7 percent

poverty level estimated for 2008 indicated some slowdown in poverty decline in the global downturn.

Since then, rising urban and rural real wages indicate fresh pace of poverty decline. Bangladesh is on

course of attaining most of the MDGs by or before 2015. A microfinance sector has been playing a

large role in extending self employment credit to the poorer population segments. Progress in wired

and wireless connectivity and rapid spread of mobile phones have vastly facilitated enhancement of

speed and efficiency of financial services in the country.

Reform measures underpinning positive socioeconomic trends

The positive trends enumerated above are underpinned by an inclusive development strategy and a

comprehensive range of policy and institutional reforms over the past few decades.

- Development strategies are aimed at broad-based equitable growth, opening up blocked

advancement opportunities for the poor for their socio economic empowerment. Accordingly, annual

national budgets routinely allocate major part of public expenditure for social sectors of food security,

primary healthcare, primary, secondary education and vocational training; with focus on needs of the

poorer segments of population.

- Cautious and prudent monetary policies are maintaining stability and debt sustainability, yielding

satisfactory sovereign credit ratings with a stable outlook; avoiding boom bust cyclical volatility and

debt crises. Ongoing reforms in revenue mobilization have started yielding noticeable increase in the

low (about 12 percent) revenue to GDP ratio.

- Support for adequate domestic production of essential food crops is bolstering food security and the

rural economy, lowering dependence on costly uncertain imports at times of global shortages or

supply disruptions.

- Market reforms are abolishing dictated lending and freeing up interest rates and exchange rates,

activating markets for efficient allocation of resources; and enabling the private sector to play

dominant role in both the real and financial economy (now covering nearly ninety percent of economic

activities).

- Major widening of external sector has taken place. External trade has been liberalized in line with

WTO rules, and Taka is fully convertible for current external transactions. In external capital account,

outflows of resident-owned capital for investment abroad are restricted; but inflows and outflows of

non-resident-owned capital (including profits and capital gains) are free of restrictions, except for the

potentially destabilizing short-term hot money flows.

- Besides regulatory and supervisory measures strengthening financial system stability, Bangladesh

Bank has launched a comprehensive financial inclusion campaign engaging banks in innovating cost

effective financial service delivery modes in partnerships with microfinance institutions and mobile

phone/IT platforms, to reach out to the underserved productive economic sectors (like small

landholder/tenant farmers, SMEs) and poorer population segments. These financial inclusion

initiatives promote growth both by stimulating output activities and domestic consumption.

- The government’s ‘Digital Bangladesh’ program has accelerated build-up of countrywide connectivity

and IT infrastructure, enhancing performance of public services and private businesses; besides also

widening export opportunities in IT-enabled services.

Constraints and challenges for transition to a higher growth trajectory.

- The country’s physical infrastructure, including generation capacity of electricity and other forms of

energy is severely overstretched, requiring urgent overhaul and major expansion. The government

has already initiated comprehensive immediate and longer-term remedial programs, some of which

have already started yielding results. The programs envisage large volumes of local and foreign

private sector investments. Rigidity of administratively dictated user prices of energy is a major reason

holding back private sector investment in the energy sector.

- Difficulties in affordable acquisition of land for setting up industrial enterprises are increasing with

spiralling prices in the overheated real estate markets. Besides appropriate changes in land

development and management practices, the overheated real estate markets need cooling off with

effective policy steps.

- Despite policy regime permitting unrestricted inflows and outflows of non-resident owned

investments with current profits and capital gains, FDI inflow into Bangladesh has remained modest

compared to our neighbours like India, Pakistan, SriLanka. Attracting higher FDI inflows will require

effective, aggressive marketing of comparative advantages of Bangladesh as an attractive investment

destination.

- Given that Bangladesh is still a low, subsistence level income economy, continuing grant

/concessional financing assistance from the international community will remain important for

accelerating growth and poverty elimination; because rapid rise in commercial borrowing to finance

development investments will jeopardize debt sustainability.

- Climate change trends driven by global warming pose threat for livelihood practices in large swathes

of the country; warranting a range of adaptive responses including breeding of crop varieties suited to

the likely climatic changes, adoption of environmentally benign production practices and lifestyles

minimizing harmful emissions, extensive sourcing of renewable energy and so forth.

Recent Trend of Economic Growth

- By assessing the recent trend of the world economy, it is seen that developing Asian economies,

emerging and developing economies are progressing better than advanced economies. Even though

the growth rate of Bangladesh economy lags other Asian economies, it is in front of the emerging and

developing economies (Table 1).

- According to the latest Moody’s Report the broad-based inclusive output growth in Bangladesh was

largely driven by internal demand in FY 2010, and the economy continued on a firm path. The 5.8%

real GDP growth in FY10 was driven on the supply side by robust agricultural growth of 4.7%, service

growth of 6.4% as well, as industrial growth of 6.0% compared to FY09 growth of 4.1%, 6.3% and

6.5% respectively and on the demand side, domestic demand grew by 6.8% supported by remittance

driven consumption rise, subsidized sales of food grains and social safety net expenditure by the

government.

- Exports continued to grow, expanding by 4.1% in FY2010, down slightly from the year before, and

in stark contrast to peers whose exports contracted over the same period. By the close of FY2010,

Bangladesh’s exports had rebounded strongly, increasingly 41% year to year in FY2011, including

increased exports to newer markets such as Australia, Japan, China and the EU.

- The IMF believes that the real GDP growth rate of 8% is achievable by 2014 if necessary

investments are made in infrastructure, power and other capacity generating activities, which the

government has already made with the support of World Bank and Asian Development Bank funding.

(Source: http://theindependentbd.com/paper-edition/oped/52614-bangladeshs-growth-trends-

and-outlook.html) Labour cost Bangladesh gains its competitive edge mainly from its low labor costs of semi-skilled workers.

The country has an adequate pool of semi-skilled as well as unskilled workers who are willing to

work at very competitive rates, thus enabling Bangladesh to penetrate deep into the hearts of

the international markets, with comparative and competitive cost advantages.

The government supports the principle of fair wages to the workers linked to increased levels

of production. Wages may be fixed through collective bargaining processes. In case of

inadequacy of the collective bargaining procedure, wages can be set by the Minimum Wages

Board. The Minimum Wages Board strives to ensure a balanced view of both the interests of the

management and the workers. The following examples indicate the average monthly basic

wages and fringe benefits in US$ per worker in a private sector organization. In the fin al

analysis, wages and others compensations are market set.

Wage (monthly in US$) Unskilled Semi-skilled Skilled

Basic wages 30 50 70

Fringe benefits 20 25 30

Total 50 75 100

Source: http://boi.gov.bd/about-bangladesh/costs-of-doing-business/overview-of-cost-heads-human-resources Construction cost and trends

Summary of Business Costs:

Land US$

Average price of developed land in the different industrial belts varies depending on location (price per square meter).

10.0-15.0

Construction Average per square meter 100-

125

(Source: http://boi.gov.bd/about-bangladesh/costs-of-doing-business) Business Cultures

i. Communication Styles

Bangladeshis are quite implicit/indirect communicators. They tend to communicate in long, rich and contextualized sentences which only make sense when properly understood in relation to body language.

It is important for people who come from implicit/direct cultures to understand that their communication styles may be seen as rude and the information provided inadequate.

Personal space is less of an issue in Bangladesh than many European cultures. Bengalis stand close when speaking to someone of the same gender and touch is common.

However, when speaking with a woman the space is often increased.

ii. Meeting & Greeting

Business etiquette in Bangladesh is reasonably formal. Proper behaviour is expected.

Men greet each other with a handshake upon arriving and leaving.

Foreign men should nod to a Bangladeshi woman unless she extends her hand. Businessmen should be addressed by the term "Bahadur" ("Sir"), while women may be addressed as "Begum" ("Madam"). This may be used with or without the surname.

Wait until your counterpart moves to a first name basis before you do so.

iii. Business Card Etiquette

Business cards are exchanged after the initial introduction.

Educational qualifications are valued so include any university degrees.

Present your business card with the right hand.

Treat business cards given to you with respect. Merely glancing at it then throwing it on the table would be rude. Study it, comment on it and ideally place it into a business card holder.

iv. Business Meetings

Meetings in Bangladesh are generally the place where decisions are disseminated rather than made.

They will usually be led by the most senior present who sets the agenda, the content, and the pace of the activities.

Meeting structures are not very linear in Bangladesh. There may be an agenda and a starting time, but they only serve as guidelines.

Completing a meeting fully takes priority over time and may extend well past any scheduled end time.

Meetings may commence with some small talk.

Communication is formal and follows a hierarchical structure. Deference to the most senior person in the group is expected. This is especially true when dealing with government officials.

One should never let their level of professionalism slip. Casual behaviour may be misinterpreted as a lack of respect.

Never lose your temper or show emotion. This may lead to a loss of face which will mean a loss of dignity and respect.

The need to avoid a loss of face is also reflected in communication styles. Rather than say no or disappoint people Bangladeshis will phrase sentiments in such as way that it is up to people to read between the lines to understand what is being implied. Phrases such as "we will try", "that may be difficult", or "we will have to give that some though" may really mean "this can't be done".

Therefore, it is important to ask questions in several ways so you can be certain what was meant by a vague response. Silence is often used as a communication tool.

Many people comment on the lack of smiles in Bangladesh. This has nothing to do with unfriendliness but rather related to the fact that a serious face is believed to demonstrate maturity.

Source: http://www.kwintessential.co.uk/resources/global-etiquette/bangladesh.html How to do business Requirements for the establishment of a business:

i. Place of Business Foreign companies not registered in Bangladesh can set up a place of business in Bangladesh in the form of a Branch Office or a Liaison Office. Permission will be required from Bangladesh Bank and the BOI in order to open up a Branch Office or a Liaison Office.

ii. Foreign Investment Foreign investors may set up an industrial entity which is wholly-owned or set up in collaboration with local investors. There is no requirement to obtain prior permission to set up such enterprises if the entrepreneurs use their own funds.

iii. Registration of Foreign Direct Investment Although prior permission is not required, it is advised that a business entity is registered in order to benefit from various facilities and institutional support provided by the government, entrepreneurs and sponsors.

iv. EPZ or Industrial Estate

If the business is to be set up in an EPZ or industrial estate, registration must take place with BEPZA or Bangladesh Small Cottage and Industry Corporation (BSCIC)

v. Any other business If the business is to be set up elsewhere, it must be register with BOI.

vi. Manufacturing Firm A manufacturing firm employing ten or more workers must also register with the Chief Inspector of Factories and Establishments.

vii. Business requiring Pre-registration Clearance

A pre-registration clearance is required for investment in the following areas as FDIs are discouraged in these areas:

Ready-made garments

Banks

Insurance companies

Other financial institutions

Source: A guide to doing business in Bangladesh by Amir & Amir Law Associates, Updated 29 December 2011)