While Asia has become the world's growth hotspot, Bangladesh is part of this dynamic phenomenon. The country like its unique six seasonal offers is also appealing global business minds and entrepreneurs to tap into the oodles of opportunities this growing delta offers. With a rapidly growing youth population, the country has become a new emerging market of close to 165 million and has a surging middle class. And this growing internal market offers ample opportunities for trade and investment in consumer goods and luxury items. Investment opportunity needs to be rightly approached by investment banking sectors.
The context of business landscape is changing fast. Problems of the 1990's were population growth rate, natural calamity, anti-market policies etc. But the country has proved itself resilient even in the face of Great Recession, with GDP growing more than 6.0 per cent, and GNI tripling from US$ 251 to US$ 851 between 1985 and 2012. The World Development Report 2013 rightly notes: "Some countries have done well in human development indicators, and others have done well in economic growth, but Bangladesh belongs to a rather small group of countries that have done well on both fronts,"
Currently, the country aspires to join the club of middle income countries by 2021. If the country wants to reach the goal, a few hurdles must be overcome: Economic growth rate will needs to rise from the current 6.0 per cent to 7.5-8 per cent a year and sustaining remittance growth at over 8.0 per cent. Faster growth in turn will depend on four main factors--increased investment, faster human capital accumulation, enhanced productivity growth, and increased outward orientation.
Investment to GDP ratio currently stands at 24 per cent, which has to move up to 30 per cent to take the growth rate to the desired trajectory.
With the country's economic size standing at USD $130 billion, fresh investment needs to be USD$ 8.0 billion dollars per year-more than current annual investment flow.
Potential sectors in mega projects, which ensure productivity and stability of all business activities, are power generation with current production size 8,000 MW and target production size 20,000 MW by 2021 with 1.0 per cent in renewables, where as investment required for implementation is US$ 10 billion. Roads, highways and bridge are crucial projects to be taken into consideration, which will require investment of US$ 35 billion over the next five years. IT Network is another strong growth market. This is a high priority thrust sector identified by the government, which involves a huge young aged population to be entrepreneurs through outsourcing, or do jobs from remote places. Bangladesh is seeking to build its new identity "Digital Bangladesh", three IT parks are being developed including skill development infrastructure to boost workers' efficiency. The infrastructure will gradually lead to e-governance, internet based education, transparency in business, health care outreach programmes, financial inclusion, payment processes and next frontier technology based products.
Nascent stage of formalised corporate governance practices, entrepreneurs-led businesses are gradually converting as formalised institutions. Around 66.7 per cent of the listed companies have adopted CG and 43.3 per cent have compliance policy with national or international benchmarks but a considerable percentage of the top management does not fully understand the concept of CG. Bangladesh has lagged behind its neighbours and the global economy in the area of CG. One reason for this slow progress in adopting CG is that most companies are family-owned businesses. A concentrated ownership structure affects the effectiveness of corporate governance mechanisms, weaknesses cannot be rectified by laws and regulations. Therefore, motivation to disclose information and improve governance practices by companies is also felt negatively. There is neither any value judgment nor any consequences for CG practices. The current system in Bangladesh does not provide sufficient legal, institutional and economic motivation for stakeholders to encourage and enforce CG practices. Inclusion of independent directors is perceived to be non-value addition to many traditional entrepreneurs. Since most businesses are family-owned, they fear losing control of management after inclusion of foreign investors and reduced decision making, and consider audit, internal control and due diligence to be cost burden.
Clearly outlining the difference between economic and operational control is of paramount importance. There is often a misperception among owners that a private equity firm will constantly be looking over their shoulder, involved in every decision concerning the operation of the business. In most cases, however, the investor wants the person who has so successfully built and run the business day to day to continue doing so. In this light investment bank plays a great role.
At City Bank Capital, a fully owned investment bank of leading commercial bank City Bank, we provide equity portfolio management and focus both on sell and buy side Corporate Advisory services including IPOs, private equity, mezzanine and debt financing.
We proactively identify opportunities in the growth sectors i.e. construction and engineering, IT, healthcare and Power. We are building up capacity for sell side M&A in the RMG and FMCG sector.
We are also actively involved in impact investment areas i.e. solar irrigation and solar equipment manufacturing. City Bank Capital is well positioned in supporting foreign investors looking for growth opportunities in Bangladesh.
We assist foreign investors to understand local business environment, corporate governance, regulatory requirement and hurdles, legal issues related to entry and exit through IPO or trade sale.
We provide deal sourcing for private equity funds as we have access to large conglomerates in Bangladesh who are constantly looking for foreign capital for their business expansion. Currently, clients are looking at US Dollar debt funding as USD interest rates are historically low, coupled with a stable local currency. While BDT interest rates are declining, the cost of financing through BDT remains high. Some businesses are also looking at growth capital to reduce cost of local currency bank finance.
We are also in a position to provide due diligence on project viability, quality of entrepreneur and effective tax structure for foreign investors.
Asia examines the trade and investment opportunities for continental asset managers, private banks, family offices, private equity firms and corporations into Bangladesh's emerging market. With the Bangladesh economy growing over 6.0 per cent in the past decade or so, the second Bangladesh Investment Summit is a right venue for global investors to meet the country's leading regulators, banks and corporate houses to discuss the investment climate and ways to pump capital and reap yield.
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The writer is CEO of City Bank Capital, an investment banking arm of City Bank
