Business Business Valuation

Benefits and Challenges of Doing Business in Bangladesh

Bangladesh, a South Asian nation, is appearing as the new ‘Asian Tiger’ in today’s world following the economic growth trajectories since the Liberation of 1971 in Bangladesh. The GDP growth observed in Bangladesh fell to 6.45% in the last five years, targeting the growth of exports and supporting low-cost labour, increased involvement of female labour, and a shift to other production gains from agriculture to manufacturing. The main remarkable track record with the aim of growth and development as observed in the economy of Bangladesh is to carry the ease of doing business in Bangladesh and permitting various industries to establish and grow their business in the nation. However, maintaining the growth of Bangladesh’s economy is still a challenge for the industrialists doing business in Bangladesh. The government of Bangladesh has major plans for implementing and maintaining Bangladesh’s economic infrastructure through various investment and financial projects to ensure ease of doing business.

An overview of the business climate in Bangladesh

Doing business in Bangladesh means attracting direct investment opportunities from both foreign and domestic sources to acquire the Bangladesh market. Doing business in Bangladesh attracts various challenges as well as benefits for the business establishments to carry out their legal business in Bangladesh according to the publications of the IMF, which established Bangladesh to hold in the capacity of a ‘Frontier Market’ with the second fastest growing economy at a rate of 7.1% in 2016. The business climate of Bangladesh is difficult to predict as it is backed by many challenges like, an unfavourable climate, few business opportunities (es), low resources, and a competitive business environment, and also it offers benefits to the newly incorporated business units in Bangladesh through attractive investment opportunities, economic development of the market, low cost of living, cheap resources, cost-competitive business environment, easy access to international air and sea routes, abundant natural resources, etc. The overall growth observed in Bangladesh’s business environment has addressed its major economic and political issues, like poverty alleviation, maintaining a balance of payment, creating opportunities for employment, streamlined regulations, etc. A detailed overview of the business environment or climate of Bangladesh is provided below:

1. An average growth of 7% in GDP has been observed in the last decade;
2. A rise in inflation has been observed in the last decade;
3. Holds the status of ‘most favoured nation’;
4. Offers stable credit rating;
5. The major exporters in Bangladesh belong to industries targeting the production of raw jute, tea, leather, handicrafts, frozen food, chemicals, readymade garments, medicines, etc.;
6. The government took the initiative to improve and expand the industrial policies and other relevant regulations of the nation;
7. Established various Economic Processing Zones (EPZs) and other Economic Zones (SEZs);
8. Industries started importing their business in Bangladesh, like, cotton, electronics, plastics, oil, automobile, pharmaceuticals, iron and steel industries;
9. Growth and development have been observed in the manufacturing and Information Technology industries;
10. Shifting the aim from an agrarian economy to an industrial and service economy;
11. An increase in foreign investment opportunities has been observed in the business economy of Bangladesh because of various investment incentives and tax exemptions offered by the government of Bangladesh;
12. An increase in business registration has been observed in Bangladesh, allowing diverse corporations and companies to establish and carry their business in Bangladesh, etc.

Types of Legal entities doing business in Bangladesh

The legal entities must be incorporated and registered with the authorities of Bangladesh to enjoy the ease of doing business in Bangladesh. According to the report of the HSBC Bank published in 2016, Bangladesh is considered to be the place attracting business and corporate organizations for legally doing business in Bangladesh, which is a result of specified reasons responsible for creating Bangladesh as a nation with a favourable business climate or environment ensuring the ease of doing business in Bangladesh. There are appealing reasons responsible for attracting different types of legal entities to start doing business in Bangladesh, as provided below:

1. A company is a legal entity that is to be incorporated and registered under the Companies Act of Bangladesh. A company in Bangladesh can be categorized as:
2. Company Limited by shares, including Public and Private Companies
3. Company limited by guarantee
4. One-person Company;
5. Subsidiary Company;
6. Unlimited Liability Company;
7. Liaison Office of Foreign Company;
8. Representative or Branch Office of Foreign Company;
9. Franchise Business is a type of legal business carried out in Bangladesh, mainly targeting the people willing to establish their legal entity for doing business in Bangladesh.
10. A Cooperative Society is a way of establishing and doing business in Bangladesh aiming for the growth and development of various sectors like the healthcare industry, entertainment industry, and other sectors targeting wide options for medical equipment, canteen services, establishing rainwater harvesting plants, less expensive grocery, and other emergency requirements.
11. Sole-proprietorship Business is the simplest form of legal entity that mainly targets the ease of doing business in Bangladesh, wherein the business owner stands as the only business unit owner, solely holding all the liabilities and assets of the business.
12. A Partnership Business, a legal business in Bangladesh, requires at least two partners to form and carry out the firm’s business operations in Bangladesh, wherein the partners have a share in the profits and loss of the firm as provided under the Partnership Act of 1932.
13. General Partnership
14. Limited Liability Partnership
15. Limited Partnership

The list of some of the industries that grew in the booming business environment of Bangladesh is provided below:

1. Electronics Industry;
2. Garments Industry carrying the clothing business is currently the most profitable industry;
3. Textile Industry;
4. Agriculture Industry;
5. Power and Energy Industry;
6. Airline Industry;
7. Telecommunication Industry;
8. Automobile Industry;
9. Healthcare and Pharmaceutical Industry;
10. Information Technology and BPO Industry;
11. Infrastructure and Construction Industry; etc.

Benefits of doing business in Bangladesh

Bangladesh has the most attractive and favourable business environment, inviting domestic and foreign investors to multiple opportunities and rewards for doing business in Bangladesh. In today’s world, Bangladesh is considered to have a progressive economy as it is becoming a hub for foreign investors with diverse investment opportunities in the industries already doing business in Bangladesh.

Registering and doing business in Bangladesh has been simplified through Enterslice services, providing an easy business setup process in Bangladesh, resulting in certain benefits that the legal entities are authorized to enjoy in Bangladesh. Some of the benefits of doing business in Bangladesh are explained below:

Easy access to labour and other industrial facilities

Doing business in Bangladesh is possible due to several factors, one of which is easy access and attracting the workforce and labour because of the large number of manpower with approx. In Bangladesh, 174.70 million total population is continuously growing by nearly 1% every year. The benefits addressed due to the large manpower availability in Bangladesh are provided below:

1. Cheap cost of the skilled and non-skilled labourers in the world;
2. Easy to gather young and skilled professionals;
3. Low cost of living in Bangladesh offering conformable expenses for accommodation and of the labourers;
4. Increase in the engagement of women entrepreneurs;
5. Comfortable employment conditions and labour laws like the Workmen’s Compensation Act of 1923, the Factories Act of 1965, the Maternity Benefits Act of 1936, etc., offer labourers a lot of immunities, wages, fringe benefits;

Not only this, Bangladesh also offers various industrial benefits to ensure the ease of doing business in Bangladesh like:

1. Easy access to obtain industrial plots or estates directly through the BOI;
2. Easy to get industrial loans like foreign loans and supplier’s credit;
3. Easy to gather utility services with the assistance of the Utility Service Cell in consonance with the  BOI;
4. Established laws and regulations concerned with settling industrial disputes under the provision of the Industrial Relations Ordinance of 1969.

Low Taxes

Doing business in Bangladesh is possible because of lower tax rates and various other offers providing tax exemptions to the corporate, foreign, and other legal entities established and doing business in Bangladesh. The tax benefits that the business enjoy in Bangladesh are as explained below:

1. Exemption from inheritance taxes;
2. Decreased the tax rates for various industries registered and doing business in Bangladesh;
3. Tax rebate on physical infrastructure facilities like deep sea ports, EPZ, hi-tech parks, mono rails, underground rails, waste treatment plants, flyovers, etc.;
4. Zero rate of VAT on the goods exported;
5. Tax rebate to manufacturing industries for managing and ensuring sustainable industrialization in Bangladesh;
6. No requirement to pay payroll taxes by the companies and other legal business entities registered in Bangladesh;
7. Low tax rates for corporate legal entities;
8. Various industries like universities, hospitals, and flood or disaster management establishments incorporated with the motive of promoting charitable programmes are exempted from gift tax in Bangladesh;
9. Tax holiday benefits offered to the investors providing for a 5-year tax exemption scheme and 100% exemption from taxes;
10. Provides double taxation relief on income earned by legal business entities only upon an agreement with the government of other countries- as provided under the provision of the Income Tax Ordinance of 1984;
11. Fiscal tax incentives offered to industrial undertakings like automobile, manufacturing, bio-fertilizers, textile, pharmaceuticals, and other relevant industry

Faster developing business-friendly environment.

Bangladesh has a supportive business environment, allowing it to fall under the purview of developing countries, namely, ‘Next Eleven’, ensuring global economic growth through offering a suitable developing business climate to the legal business entities registered and doing business in Bangladesh. Bangladesh’s continuously growing and developing business climate offers a wide platform for legal entities to strategize their political stability and wide opportunities for trade and investment.

Large Size of Market

According to the reports published by the World Bank, Bangladesh, with a GDP of $2503 per capita in 2021, promised to graduate with the title or status of being a Least Developed Nation or Country (LDC) till the year 2026. Bangladesh’s continuously growing market size is an obvious reason for legal firms, entities, and companies to establish their manufacturing facilities, franchises, branches, subsidiaries and regional offices in Bangladesh. The increasing market size of Bangladesh is also an outcome of the continuously growing demographics manipulating the market.

Free Zones and Trade Agreements

To ensure ease of doing business in Bangladesh, the government took various initiatives to establish free economic zones and trade agreements in order to reduce traffic, quotas, and other economic barriers to maintaining export and trade among the nations. Some of the initiatives are explained below:

Economic Processing Zones (EPZs)

To promote and attract more investment opportunities in Bangladesh, the government formed an official body under section 3 of the Bangladesh Export Processing Zones Authority Act of 1980, establishing 8 Economic Processing Zones, leading large legal entities to invest and extend their business operations in Bangladesh.

Special Economic Zones (SEZs)

The next step the government of Bangladesh took towards establishing 97 public and private Special Economic Zones managed by the 3-tier government entity called Bangladesh Special Economic Zones Authority, established in 2010.

Free Trade Agreements

Bangladesh became a signatory member of various international and regional organizations like the World Bank, the International Monetary Fund, the Asia Pacific Trade Agreement, the South Asian Association for Regional Cooperation, and the Agreement on Trade-Related Intellectual Property Rights (TRIPS) for providing political stability and other economic stability to the legal business entities doing business in Bangladesh. The Free Trade Agreement signed by Bangladesh offers diverse benefits to startups and other legal entities doing business in Bangladesh.

Strategic Location

Bangladesh has a strategic location sharing borders and is situated on the Bay of Bengal, ensuring the ease of doing business in Bangladesh. Bangladesh’s strategic location offers a wide scope for legal business entities to grow and develop there. Some of the benefits of having a strategic location in Bangladesh are discussed below:

1. Landlocked maritime routes with Nepal, Bhutan, India, and China;
2. Offers easy access to the world’s biggest market and trading partners;
3. Easy direction for international sea and air routes to grow; etc.

Stable Currency

Upon the failed attempt of the World Bank to replace the currency of Bangladesh, i.e., the Bangladeshi Taka, with the US dollar, the nation decided to maintain the balance of the currency against the currency of its major trading partners. The currency of Bangladesh is a controlled devaluation allowed to float freely to attract large investment opportunities from the IMF and establish Bangladesh as an export-oriented developing nation.

Wide Investment Opportunities

Bangladesh has been offering various schemes to attract investors to establish and do business in Bangladesh. The investment opportunities invite foreign investors to invest in various industries in the public and private sectors to set up their businesses and facilitate infrastructure development, allowing foreign investors to actively build business strategies and ensure a strong and competitive business environment in Bangladesh. The wide investment opportunities offer diverse benefits for accelerating and doing business in Bangladesh, as provided below:

1. Tax exemption through its double taxation policies;
2. Offers taxation incentives and rebates on export and import duties;
3. Ensures digital growth of the business;
4. Wide investment opportunities observed in the infrastructure industry;
5. Consistency in the growth of the domestic market, etc.

Bangladesh Vision 2041

The Smart Vision of Bangladesh-2041 is designed to target Bangladesh’s future goals, ultimately adding to the convenience of doing business in Bangladesh. The vision is an extension of the Vision of 2024, providing for the following aims:

1. Increase in political participation;
2. Ensure transparency of the government of Bangladesh;
3. Assist Bangladesh to create a poverty-free and middle-income nation;
4. Develop smart and skilled human resources in Bangladesh;
5. Maintain sustainability in the environment;
6. Ensure smart government in Bangladesh;
7. Maintain smart contracts and block-chains in the economy of Bangladesh;
8. Ensure technology-based solutions to tackle the global market;
9. Ensure cyber security of the business entities doing business in Bangladesh;
10. Build an inclusive, equitable, and smart society for business freely in Bangladesh.

The challenges of doing business in Bangladesh

The major issues and challenges faced by the legal entities established in Bangladesh are the hindrances and obstacles observed in ensuring the ease of doing business in Bangladesh, making it an unattractive country. Foreign and domestic investors are parting ways from investing in Bangladesh’s business entities because of the hidden costs of doing business in Bangladesh. Doing business in Bangladesh is challenging for a new startup willing to incorporate their business in Bangladesh. The World Bank report named ‘World Bank Group’s Doing Business 2019 Report’ ranks Bangladesh in the 176^th global position, specifying the ease of doing business in Bangladesh. Some of the major challenges are discussed below:

Legal Challenges

The legal entities registered and doing business in Bangladesh are also backed by several legal reasons required to be kept in mind before the incorporation of business entities in Bangladesh. Some of the legal challenges faced before doing business in Bangladesh are as provided below:

1. The purpose of business;
2. The size of the business;
3. The ownership structure of the business;
4. The profit distribution scheme of the business;
5. Any issues regarding the trademark and copyright registration;
6. Regulations governing the trade and commerce of the business.

Immature Customer Market

The lucrative business opportunity observed in the large market of Bangladesh also attracts the attributes of not being a serviceable market with less opportunity for infrastructure growth of the population of Bangladesh possessing a low affordability rate of more than 20%. As found, slow and steady growth has been observed in the outer regions of Dhaka, which is illustrated as the GDP rate of the home appliance repair market in the USA is bigger than the entire GDP of Bangladesh, which is the ultimate reason restricting the luxury brands to target the market of Bangladesh irrespective of the fact of having the 8^th largest population in the world.

Mentality of Vendors

The biggest challenge which legal entities face while doing business in Bangladesh is the lack of patience and long-term strategy targeting the mentality of the vendors to make more and more money from the very 1^st interaction. This mentality of vendors contributes towards the short-termism of the long-term contracts or business relationship between the vendors of Bangladesh and the legal entities doing business in Bangladesh attracted by the delivering of sub-standardized and mixed goods and services, cheating and forgery during the delivery of the products, etc.

Inadequate Infrastructure Facilities

Another challenge observed while doing business in Bangladesh is the poor and inadequate development of infrastructure facilities in the nation, as only 60% of the population has electricity facilities, and only 18% have access to internet connectivity.

Access to finance

Insufficient access to funds is a major challenge faced by the legal entities doing business in Bangladesh. According to the World Bank’s enterprise survey of Bangladesh held in 2007, access to finance and funds has been targeting small-scale entities and medium- and large-scale legal entities. Some of the major financing problems faced while doing business in Bangladesh are:

1. Low access to bank loans for the business;
2. Low access to the investors majorly invested by family members or relatives;
3. Higher rates of interest on the loans and other borrowings;
4. Lack of transparency in outstanding loans;
5. Lack of collateral loans from financial institutions;
6. Payment issues and relevant risks, etc.

Corruption          

Corruption in Bangladesh has been a major challenge for legal entities to grow and continue doing business in Bangladesh. The major reasons for the increase in corruption in Bangladesh are the political instability, the bureaucratic hassle, and the limited access to credit, an emerging challenge for small, medium and large-scale business entities. Some of the challenges affecting and corrupting the business environment of Bangladesh are as provided below:

1. Affects the tax health;
2. Mismanagement of skilled labourers and workforce;
3. Issues in Foreign Direct Investment Opportunities;
4. Other corruptive reasons include bribery in licensing, registration, and tax collection;
5. Unethical transaction;
6. Weak and changing public policies;
7. Lack of good governance;
8. Certain other administrative weaknesses, etc.

Other Challenges

A list of other challenges faced by the legal entities registered and doing business in Bangladesh is provided below:

1. Difficulty in the grant of permits and licenses;
2. Religious extremism;
3. Import restrictions;
4. Booming inflation;
5. Lack of efficient distribution channels;
6. Scarcity of the reserves of natural resources;
7. Low-income nation;
8. Working conditions are poor;
9. Safety issues in the business environment;
10. Delay in payments;
11. Lack of efficient distribution channels;
12. Worse quality of raw materials;
13. Lack of digitalization in the business environment of Bangladesh;
14. Lack of strategic implementation of human resources, etc.

Conclusion

Bangladesh, a nation which borders the Bay of Bengal in southern Asia, has a suitable and attractive business environment, allowing the setup of legal business entities in Bangladesh, which is attracted by the huge internal market and investment hub for labour-intensive business entities. The ease of doing business in Bangladesh is also substantially challenged by the factors regulating the business environment of Bangladesh, which the legal entities registered and doing business in Bangladesh overcome through the use of set principles and strategies like using professional and personal networks to grow business, resolving the financial challenge through the use of one’s own (personal) resource, for governing the business setup in Bangladesh.

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