WB finds RMG, housing, paints and digital finance as profitable sectors

Infographics: TBS

A World Bank Group's diagnostic report has identified four sectors – green ready-made garments (RMG), housing for middle-income households, paint and dyes, and digital financial services – potential for private investment in Bangladesh.

To make domestic and foreign investment profitable in these sectors, the report suggests specific reforms to remove obstacles such as electricity shortages, access to finance, corruption, tax rates and competition from the informal sector.

These obstacles have restricted the ability of promising small- or medium-sized firms to grow, the report points out, explaining why a few large groups dominate most sectors and promising small firms struggle to survive.

The report, styled "Bangladesh: Country private sector diagnosis," suggests that Bangladesh needs to overhaul its customs procedures and tariff structure. It refers to Bangladesh's poor scores in the Logistics Performance Index (2023) with an overall rank of 88 out of 139 countries, and cites how long clearance times drive up importers' inventory cost.  

"Bangladesh continues to use tariffs as a primary trade policy instrument and a major revenue source," it says. The average most-favored nation tariff in 2023 was 14.1%, but including supplementary and regulatory duties, effective protection rates on imports rose to approximately 30%, the report reveals.

The report, jointly prepared by World Bank Group's two institutions—International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA), was unveiled on Tuesday (8 April), at a session of the Bangladesh Investment Summit 2025. Chief adviser's special envoy Lutfey Siddiqi and Bida executive chairman Chowdhury Ashik Mahmud Bin Harun were present at the event at Hotel Intercontinental.

Expected graduation from LCD status in 2026 has been seen as additional challenges for Bangladesh as it will end trade preferences, requiring the private sector to be more productive to remain competitive. This calls for new investment in technologies to meet global compliances, and improve productivity and business environment.

Potentials rediscovered

Bangladesh's housing market remains largely untapped and the growing middle-income segment's demand for homes creates an annual investment potential of $2 billion for banks, non-bank and microfinance institutions, says the report.

The urban upper middle-income segment target market, projected to grow to 4.46 million households in 2030, creates an average annual demand for an additional new 180,000 housing units against the current supply of only 30,000 units, IFC estimates in a draft report on Bangladesh's private sector's prospects and constraints.

"Despite over 20 public sector stakeholders in the housing sector, there is no champion for housing for middle income households," it says, suggesting private investment to expand housing supply could target Bangladeshi households with monthly income between $390 and $1814.

It finds housing sector trade body Rehab opposing foreign investment offers in green construction fearing increased competition for domestic private builders.  

Growing demand from construction and textile industries offers good prospects for local production of paint and dyes. Demand for paint and dyes could increase to $1.4 billion requiring an investment up to $288 million by 2030, it said.

It says digital financial services offer new business opportunities, and reforms to increase adoption rates and firm's credit access could create 4.6 lakh new jobs and formalize 3.6 lakh existing jobs in five years.

Diagnosis meets positive response

Interim government officials and industry leaders in the panel discussions found the suggestions doable.

Bida Chairman said some of the sectors the World Bank Group picked are common to the Bida FDI Heat map. "Lot of points resonate with me including customs digitizing, national single window and several others," the head of the investment promotion agency said.

He acknowledged that there are constraints and the government can intervene and improve things.

"Bida is not a post office anymore, it has turned into a problem solving unit for the investors.  Things are moving in the right direction," he told the session.

Agreeing with the World Bank's diagnosis, he said, "Housing is one of the most important concerns. We need to resolve (problems it faces)."

"Something must be done."

He pointed out that the government planned for industrial zone development, but housing solutions remained ignored.

"The only thing we look at is jobs, jobs, jobs. It has to be our primary target," the Bida executive chief said.

He however admitted the limitations. We have a finite time frame, mobilizing government resources and financing takes time. Kick starting the process with some key sectors should help."

Industry people also found the World Bank's diagnosis right.

Bangladesh's RMG firms have low technological sophistication and rely mostly on semi-automated technologies, lagging competitors such as Indonesia and Vietnam, the report says.

It stresses that evolving garment industry trends like "fast fashion" and "e-tailing" necessitate the adoption of more advanced technologies such as automation and 3D knitting to stay competitive, reduce waste and minimize environmental footprint.

While only 15% of RMG manufacturing process in Bangladesh is mechanized, Vietnam has got 20% of its producers using advanced techs particularly software in product design and production management, 70% use medium-level techs, leaving only 10% with low tech equipment, it compares, warning that Bangladesh risks losing market share to Vietnam.

Ananta Group MD Sharif Zahir said greening is a top priority of the responsible manufacturers here, they are investing in it.

Emphasizing on RMG exports in the coming days, he said India is still running after RMG.

"Same agenda for any developing countries. We can double triple the volume, and create lots more jobs," the industry owner said, singling out access to utility as a key constraint.  

"I don't see a clear roadmap for energy and power."

"Bureaucracy in customs issues serve as a bottleneck," Sharif said, explaining how lead time gets longer and adds to exporters' costs.   

"As investors we need a clear roadmap, even in economic zones when the utility, drainage, ETP will be assured... All are doable things," the RMG entrepreneur said,

Discussants emphasized foreign investments and joint ventures in technology transfer and knowhow. They were also convinced that long-term low cost financing is needed to facilitate affordable housing for the middle class, and banks are yet to make it their important business despite opportunities.

The report finds absence of regulations that support the mortgage and bond market result in limited housing finance available, keeping mortgage penetration in Bangladesh low at only 3%, compared to 12% in India. It suggests creation of Mortgage Refinance Company to facilitate primary for mortgages, digitization of land registration and clearance processes.

Here BRAC Bank Managing Director Selim R F Hussain stressed an enabling role of the central bank.

Srabanti Datta, Managing Director, ABC Real Estate emphasized the government role including providing its vast land across the country for development and housing.

Bkash MD Kamal Qadir, stressed for a robust digital financial ecosystem that should enable digital loans and more digital payments.

The World Bank's diagnostic report finds Bangladesh's underlying fundamentals strong despite current turbulence. Bangladesh's population growth will surpass other middle-income countries over the next two decades, it points out. The resulting rapid growth in domestic demand is expected to increase opportunities for private investors in a range of sectors, including manufacturing, housing construction, consumer goods, and services.

Bangladesh must put in place the right policies to attract foreign direct investment in RMG and more sectors to create jobs, as 28% of youths with tertiary education staying testifies mismatch between skills available to and needed by employers.

"Without reforms to catalyze a new round of private sector-led growth, Bangladesh is at risk of wasting part of its demographic dividend," it warns.