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2. Information for Dutch Companies

 
2.1 Economic Background Information Bangladesh

Macro economy2

Bangladesh is located centrally (and hence economically favorable) in South Asia. Economically strong performers like China, India, Malaysia and Thailand are easily reached by road, air or sea route. Bangladesh considers itself a small country, but with approximately 140 million hardworking people Bangladesh clearly is a (potentially) large market. Although today, Bangladesh is still a low income country ($470 per capita in 2005). Tomorrow, however, Bangladesh could very well become the next emerging market in South Asia.

Bangladeshs macroeconomic performance has been relatively good. Average GDP growth has been over 6% during the last 4 years, while average annual inflation has been relatively low at around 6.5% (see table 1). The forecasts for economic growth and inflation show similar figures. The resilience of the economy to external (gas/oil prices, end of the MFA3 ) and internal shocks (i.e. floods) are quite remarkable. A big contributor to GDP growth is exports, particularly the export of Ready Made Garments (RMG) which accounts for approximately 75% of total exports.

 

With an export growth rate of 23%, FY 2005/06 has been a record year for exports. However, despite the continuous high growth in exports, Bangladesh imports more than it exports. Imports consist amongst others of inputs for the RMG sector, crude petroleum and petroleum products, machinery and machinery parts, iron and steel, consumer goods, animal and vegetable products, and inputs used for construction. Bangladeshs trade deficit is on average approximately USD 3000 million. Main trade partners of Bangladesh (in descending order of value) are India, China, Singapore, Japan, Hong Kong, Kuwait, Taiwan, Republic of Korea, Thailand, USA, Australia, Malaysia, Germany, Switzerland, Uzbekistan, Italy and Brazil4.

 

 Table 1 - Key economic figures Bangladesh (% change unless otherwise indicated)

 

2003/04

2004/05

2005/06estimate

GDP (market prices)

6.3

6.0

6.5

Consumer price index (annual average)

5.8

6.5

7.0

Export growth (annual change)

15.8

14.0

23.1

Exports mln USD

 

of which RMG

7,500

 

8,573

 

6,418

10,422

 

7,901

Import growth (annual change)

 

13.0

20.6

12.1

Imports mln USD

of which crude petroleum and petroleum products

9,800

 

11,870

 

1,602

13.300

 

2,004

 

Next to exports, industries (in particular manufacturing) and services are the largest contributors to economic growth in Bangladesh. The value added in GDP (2005/06) of industries was 39%, while the service sector contributed 46% and agriculture 14%.

 

The fiscal year in Bangladesh runs from July-June. Government net spending has been lower than budgeted for some years now. Although this has helped to keep the fiscal deficit under control, it also means that certain poverty-reducing related expenditures have not been made. Government revenues are slowly increasing, but at around 10-11% of GDP Bangladesh has one of the lowest percentages of revenue collection in the world. Revenues are predominantly related to taxes (8-9% of GDP), in particular VAT, supplementary duties and excises. The VAT rate in Bangladesh is 15 %. Table 2 has some information on the current Income Tax.

 

Table 2 - Income tax rates in Bangladesh

Income Tax

  • Exemption limit of personal income tax Tk 120,000 for assessment year 2006-07.

  • The limit of total income attracting the highest rate of 25% is Tk 1020,000

  • Corporate tax for non-listed companies is 40%

  • Banks provision for bad and doubtful debts up to 1% of total outstanding loans.

  • 10% advanced income tax (AIT) on dividends

  • AIT on profits and securities and bonds is 10%

  • Tax deduction at source at varying rates are introduced for freight charges of resident ocean-going ships on profit/interest paid on deposits by non-banking and other deposit collecting institutions, total export proceeds of knitwear and RMG, on transaction value of shares for stock-exchange members, and sale of apartments and land by real-estate business.

  • Losses from tax-exempt source cannot be set off against taxable income from other sources.

  • Submission of accounts by insurance companies to tax authorities is mandatory

  • Tax exemption period on income from hospitals, poultry, dairy firms and poultry feed production extended to 2008

  • Tax holiday facilities for some designated sectors extended by 3 years up to 2008

  • Time limit for disclosure of undisclosed income is extended by a year up to 2006, on payment of 7.5% tax

  • Tax rebate are allowed on donations to philanthropic and education institutions

 

Despite the stability and good performance on the macroeconomic front, Bangladesh still faces many structural, poverty and governance problems. Rising inequality is a major concern (absolute inequality has increased during the last 10 years), while the governance problem looms large and is hampering sustainable development i.e. lack of public transparency and accountability, political favoritism, corruption in procurement, loss-making Stated Owned Enterprises (SOEs), weak infrastructure development (power, port, telecom, and transport), weak law enforcement and bureaucratic hassles and bribery/corruption are facts of every day life.

 

Economic Sectors5

 

Since independence in 1971, Bangladesh has moved from a predominantly agrarian economy to one based on industry with a high specialization on a very limited number of products. While its share of GDP decreased in the last 30 years, the agricultural sector still accounted for 21% of GDP and for more than 60% of employment in 2003. At the same time, services accounted for 53.7% of GDP and industries for 25.3% of GDP.

The main agricultural products are jute and fisheries (shrimps). Bangladesh is the 2nd largest jute producer in the world after India. 85% of jute production is exported. Next to jute, Bangladesh tries to compete on the global market for tea but is increasingly losing market share. Other agricultural products are fruits and vegetables, which benefit from the favorable climate. However, due to the low quality and poor transportation facilities, the export potential of these products is rather low.

Fisheries represent approximately 22% of the agricultural sector in Bangladesh and 5% of GDP. Shrimps are the main output of the sector and all of these are exported, making shrimp export the second largest export product of Bangladesh. The quality of the shrimps is a source of concern due to cases of nitrofuran contamination. Other sectors of agro-processing in Bangladesh are fruit juices, jam and canned food.

The industrial sector primarily consists of garments manufacturing (RMG, knitwear and textiles) providing employment to 2.5 million people (more than 80% women) in over 3500 factories. Other industrial sectors are leather (CSR and quality concerns), and footwear (expanding significantly in recent years), ceramics (directed to European market), pharmaceuticals (good export potential, TRIPs transition period till 2016), light-engineering and packaging.

Services include transport, ICT, financial sector (market deepening and broadening are necessary; part of the loan agreement with the IMF (PRGF) is the privatization of 3 Nationalized Commercial Banks), Rupali Bank, utilities (market potential, i.e. structural power shortages), construction, tourism (rather underdeveloped) etc. Bangladesh is counting on outsourcing development and expects to benefit from its low wages to develop the IT market. The mobile phone market is already booming.

The agro-processing sector and ICT/Telecom have been prioritized for Dutch investment promotion (PSOM grant). Background notes on these two sectors are available at the website of this Embassy under PSOM.
 

bullet Other useful web addresses for economic background information on Bangladesh

 

www.imfbd.com

The website of the International Monetary Funds (IMF) resident representative office in Bangladesh provides up to date information on the macro economic situation in Bangladesh as well as on key structural economic reforms.

 

www.worldbank.org.bd

The website of the World Bank office in Bangladesh provides a good country overview, including a summary of economic developments, data, project information and research.

 

www.adb.org/Bangladesh/default.asp

The website of the Asian Development Bank (ADB) in Bangladesh provides quarterly economic updates, key indicators and an Asian Development outlook.

 

www.eiu.com

The website of the Economist Intelligence Unit (EIU) provides analysis and forecast on more than 200 countries, including Bangladesh.

 

www.mof.gov.bd

The website of the Bangladeshi Ministry of Finance (MoF) provides detailed budget information, monthly fiscal reports and yearly economic reviews (last: Bangladesh Economic review 2006). Note that the Bangladeshi fiscal year runs from July to June, while the Dutch fiscal year runs from January to December.

 

www.bangladesh-bank.org

The website of the Central Bank of Bangladesh provides, amongst other, economic data, information about the financial system, the money market and regulations and guidelines.

 

www.bbsgov.org

The website of the Bangladesh Bureau of Statistics (BBS) offers slightly outdated national statistic data.

 

www.cpd-bangladesh.org

The website of the Centre for Policy Dialogue (CPD) provides research and analysis on economic and policy issues in Bangladesh. One of the activities of the CPD is the Independent Review of Bangladeshs Development (IRBD) which is co-sponsored by Embassy of the Kingdom of the Netherlands.

 


2.Figures given in this section are primarily based on: IMF, 5th PRGF review (2006)

3.The Multi-Fiber Agreement (MFA) quota in USA phased out in January 2005, did not have the predicted major fall out in the RMG export.

4Annual Import Payments 2004-2005;  Bangladesh Bank

5Needs Assessment of trade and trade-related assistance for Bangladesh (2005), prepared with financial assistance of the EC, JICA, SEDF

and BFTI.

 

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