Bangladesh: a new frontier for Hong Kong companies

March 07, 2019 08:01
Bangladesh is the world’s second-largest garment exporter, after China. Photo: Reuters

In a district of northern Bangladesh, Hong Kong entrepreneur Felix Chang employs 18,000 people in four factories making hair products. They account for 90 percent of his company’s revenue, against 10 percent from three plants in China.

“In 2009, we started to look at production sites in Southeast Asia,” said Chang, chairman of the Evergreen Products Group. “Costs were rising in China, including wages, rent and other fees.”

He chose Bangladesh because of its abundant labor and low production costs, including wages and land.

Chang is not alone. Hong Kong firms have invested US$800 million in 150 projects in Bangladesh, making them the eighth largest investor.

The largest sector, US$317 million, is services: textiles come next with US$276 million and third is chemicals with US$103 million.

The United States, Britain, mainland China and South Korea are the top four foreign investors. The monthly minimum wage is US$95, the cheapest in Southeast Asia after Myanmar, US$75.

Another factor driving Hong Kong and other foreign companies to Bangladesh is the Sino-US trade war. Most people believe that, under Trump and whoever succeeds him, economic relations between the two countries will deteriorate.

Goods made in China may face tariff or other barriers to enter the US – so it is safer to diversify risk and spread production over different countries.

On Feb. 26 the Hong Kong Trade Development hosted a seminar on investing in Bangladesh, attended by about 80 people, mostly from Hong Kong.

“Our economy is now 44th in the world. By 2041, it will be 23rd,” said Md. Shah Alam, deputy secretary to the government of Bangladesh, told the seminar.

Over the last decade, the country's GDP has grown by over 6 percent a year. Last year it grew 7.86 percent, a record.

“Your investment is secured by law against nationalization or expropriation,” he said. “There is equal treatment for local and foreign firms. You can have 100 percent foreign equity ownership and unrestricted exit of capital. Almost all sectors are open. In 30 years, we have never posted negative economic growth and never defaulted on debt repayments.

“We have bilateral investment treaties with 31 countries and double tax treaties with 28. We have an open, market-based economy,” he said.

Dr. Khalilur Rahman of the Ministry of Foreign Affairs said foreign investment would be safe from labor unrest and political stability.

“Last December, Sheikh Hasina was re-elected prime minister for a further five years. This is her third term. She is an exceptional leader who has provided political stability,” he said.

Hasina has led the Awami League political party since 1981. It won an overwhelming victory in the general election on Dec. 30 last year, taking 288 of 300 seats.

The most important sector is ready-made garments. Garment exports in July 2017 to June 2018  reached US$30.6 billion, accounting for 83.5 percent of total exports.

Bangladesh is the world’s second-largest garment exporter, after China. Total exports in 2017/18 hit a record US$36.7 billion, up 5.81 percent over a year earlier. The government's target is US$39 billion by 2019 and US$50 billion by 2021, to mark the country’s 50th birthday.

Jacqueline Yuen, an economist at HKTDC, told the seminar that the country was most suitable for labor-intensive industries.

“Many brands source garments there, such as H & M, Marks & Spencer, Adidas and Uniqlo. Because it is a least-developed country, its exports pay no duty in Australia, Canada, Japan and the European Union.

“Of the country, 80 percent is flood plain. From July to October, there are flooding problems because of insufficient drainage, so you need longer lead times for export. The port of Chittagong accounts for 90 percent of total trade. The journey from Dhaka takes 7-8 hours,” she said.

To deal with an uncertain power supply, many investors buy generators they use when the national supply drops. The government is spending billions of dollars on new power stations, coal and nuclear-powered, and new infrastructure, such as roads and railways.

Felix Chang has gone further than most other foreign investors. He has opened a training center for domestic maids to prepare them for work in Hong Kong. The young women learn Cantonese, Chinese cuisine and how to live and work in the home of a Hong Kong family.

His company also gives back to the community in Nilphilmari, where the factories are. It holds distributions of rice to people over 60, costing about HK$1 million, and gives HK$200,000 to a school for handicapped children every year.

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A Hong Kong-based writer, teacher and speaker.