Bangladesh - The Frontier Market for 2019

Eating in Bangladesh can be a wonderful experience replete with many meats, gigantic tiger prawns and of course heaps of rice, often taking the form of delicious biriyani. But it is the hosts’ faces that tell the real story. It never used to be like this. Rice, like in many parts of Asia, provides a stark narrative on economic progress of a country. In the 1970’s Bangladesh underwent a famine that took the lives of an estimated 1.5 million people due to a devastating war of independence with Pakistan and a series of bad harvests that decimated the staple rice crop. It even led to a concert by George Harrison that provided the inspiration for Live Aid. In 2018, during my visit to Dhaka, the various hosts during meals would often point out that nowadays Bangladesh is one of the world’s biggest rice producers, looking with pride at the mounds of the rice on our plates.

Since the 2000’s the Bangladesh economy has been motoring at 6-7% GDP growth per year and recorded a record 7.86% for fiscal 17-18. This has been a result of a move away from a state dominated economy to a private sector led one leading to strong growth in the ready made garments for export sector where Bangladesh now ranks only second to China in the world. It is also has the world largest ship breaking industry and many see potential in moving on to the more lucrative shipbuilding sector. Other industries such as pharmaceuticals and IT hardware are also growing fast.

The real estate sector in Dhaka, the capital and main commercial centre for the country reflects this ever increasing dynamism. With its teeming 20 million population, only certain areas of Greater Dhaka are desirable to live and work and along with height restrictions due to the proximity to the airport this means that land prices in sought after areas (usually where embassies are located) are very high. Joint ventures between developer and landowner are often 50/50 but can still be lucrative given the demand for office and residential space in these locations. Land plots are often small so along with low heights most buildings reflect these size constraints, although flouting the regulations seems to be an industry in itself in Dhaka.

Many developers are now upgrading the quality of new condominiums to match international standards as many Bengali buyers now have the finances to purchase such units along with a very significant moneyed diaspora. Unit sizes are normally large, accommodating the traditional extended family structure although there is some differences of opinion as to the potential of smaller sizes in Dhaka. Although the condo market is in a small cyclical downturn the sector is still robust given limited land availability in the city and is likely to pick up after the election. The office market remains diffuse due to the lack of good quality international grade buildings but new developments are slowly leading to a flight to quality and the Gulshan neighbourhood is growing as the dominant CBD location surpassing Motijheel. 

Growing spending power, including the rise of a salaried as well as merchant middle class, is leading to a surge in latent demand for new retail and entertainment options. International brands are beginning to find their place but usually along main shopping thoroughfares. Large and small shopping complexes exist in Dhaka but the quality of retail offerings remains exceptionally poor with very little attention paid to the holistic shopping experience with no clear tenant mix and limited family entertainment options. Overall in the real estate sector I noticed a growing sense of aesthetics in new building design and a shift from quantity to quality reflecting demand from a more discerning population. Some of the pictures reflect this.

Tourism is not one of Dhaka’s strong points but the hotel market has buoyant occupancy and room rates due to limited supply and demand from the growing interest in the country from international business. Positive revenue streams in the high end category also come from the hosting of events catering to the local population with limited alternatives. A small number of international brands are present in the capital including Marriott, Onyx, Pan Pacific, Radisson and recently IHG. Serviced apartments are limited and are often competing in the daily-rate category with the limited number of expats choosing condo units for rent.

While land is scarce in Dhaka the new urban area of Purbachal offers great potential for international investors. It took me only 15 minutes to drive there along a new highway from Dhaka and I witnessed very large qualities of land available for good quality mixed use development, potentially making the most of green features with plenty of breathing space. Such locations are almost non-existent in Dhaka and could be a major draw card for Dhaka residents.

While Bangladesh often self funds its economic development, foreign investors are now taking a keen interest in the country. A Chinese consortium has bought a 25% stake in the Dhaka stock exchange and Japan Tobacco International acquired a local cigarette manufacturer for around 1.5 billion USD in 2018, a huge vote of confidence from the Japanese. Like Myanmar, Bangladesh sees benefit from engaging investors from all areas especially Japan, China, India and the EU.

The challenges are still enormous, especially with a very dense population and mostly flood-prone land making it susceptible to climate change and corruption is still a major blight like all frontier economies. But Bangladesh is undertaking its own quiet transformation with transport infrastructure projects taking place all over the country which will help it benefit from growth within Asia as a whole. In Dhaka I saw the construction of a new mass transit line and new highways with little fanfare. Cement plants are ubiquitous.

While Dhaka may not be the easiest city to live in, my visit earlier in 2018 was a very positive one. I was impressed by the quiet, no-nonsense “can-do” spirit of the business people and government agencies in stark contrast to the monotonous, often empty braggadocio that I had to endure in Myanmar for seven years. I expect the investment climate to improve as Bangladesh will need more foreign investment to support it as the country graduates from “Least Development Country” to “Developing Country” status over the coming years. Surprisingly foreigners can own freehold title to land in Bangladesh and generally navigating investment procedures is reasonable although the highly complex tax code is seen as one of the most challenging aspects of doing business.

With the general election just behind it, business people in Bangladesh now see a long period of relative stability where the country can make further significant strides towards prosperity. Myanmar is threatened to be mired in further political and administrative stasis in 2019 and also like Cambodia, has the dark cloud of a possible suspension of preferential tariffs from the EU. Laos is emerging but still awaits further progress on the impact of the BRI. Sri Lanka may have a period of continued instability and Mongolia is still dependant on its volatile mining sector. It is therefore my view that of all the frontier markets in the region Bangladesh thoroughly deserves some attention in 2019 given the country’s ability to challenge its adversity and embark on a quiet revolution. It is my tip for 2019. Happy New Year!