Heavy regulatory burdens hinder investment in Bangladesh: World Bank

Complex and discretionary regulatory processes in Bangladesh are creating a significant "time tax" for businesses, limiting investment and slowing economic growth, according to the latest World Bank report.

The report, Bangladesh Development Update, published today (8 April), said that senior managers spend an average of 13% of their time navigating government requirements, more than in any comparable regional economy.

The burden is even higher in some areas, with managers in Chattogram spending about 40% of their time on compliance, while in Barishal the figure rises to 60%, leaving less time for strategic decision-making, it said.

The World Bank said that the regulatory burden is not evenly distributed. Leading "frontier" firms spend about five percentage points less time on compliance and face fewer tax inspections than other firms, reflecting differences in treatment rather than compliance capacity.

Delays in obtaining approvals also remain a major challenge. Securing an operating licence takes around 28 days, while construction permits and import licences each require about 49 days, nearly twice as long as in countries such as China and India, it added.

High entry costs further complicate the business environment, it said, adding that starting a formal business costs around $10,000, exceeding 10% of annual revenues for more than half of firms under six years old.

Mentioning that consequences are significant, the report said firms facing heavier regulatory burdens are 19% less likely to invest, reducing competition, slowing the reallocation of resources to more productive companies, and perpetuating productivity gaps across the private sector.

The report describes "time tax" as a metaphor referring to the time businesses must spend dealing with bureaucratic procedures such as licences, approvals and inspections, time that could otherwise be used for planning, investment, hiring or expansion.

Private sector lags despite growth

In a separate analysis, the World Bank noted that despite strong GDP growth averaging 6% between FY16 and FY25, Bangladesh's private sector performance at the firm level has not kept pace.

The Bangladesh Development Update highlights a "productivity paradox," where overall economic expansion has not translated into widespread innovation or efficiency gains.

Revenue per worker in manufacturing and services stands at only about one-third of the South Asian benchmark. Productivity growth in services, the largest employer, has remained stagnant since 2016, pointing to persistent inefficiencies.

The report also finds a declining rate of new firm creation. Only 8% of formal firms in Bangladesh were established in the past five years, compared to 32% in China and 40% in Vietnam, indicating a weak pipeline of new enterprises and limited scope for diversification.

Private investment has fallen since 2013, particularly among smaller firms. Foreign direct investment remains below 1% of GDP and is concentrated in utilities rather than in manufacturing or market services, where technology spillovers could drive productivity and job creation.

"The economy has grown, but most gains have accrued to a small group of firms, leaving the broader private sector largely stagnant," the report said.

The findings underscore the need for targeted reforms to improve the business climate, support small and medium enterprises, and attract investment into high-productivity sectors to ensure more inclusive economic growth, it added.