Bangladesh Manufacturing Sector: Existing Challenges, Path to Recovery and Promising Future Growth

Bangladesh has achieved robust economic growth in the past two decades, transforming itself into one of the world's most rapidly expanding economies.

According to the Bangladesh Bureau of Statistics (BBS), GDP at constant prices grew from BDT 5 trillion in FY06 to BDT 34 trillion in FY24, a compound annual growth rate of 11.4%. This notable expansion lifted millions out of poverty and significantly boosted per capita income, which climbed from BDT 34,502 in FY06 to BDT 2,94,191 in FY24. Bangladesh has already achieved the World Bank's lower-middle-income status, having previously been classified as a low-income country, and is set to graduate from the Least Developed Country (LDC) status in 2026. The manufacturing sector, especially the RMG sector, played a pivotal role in this economic transformation, its share of GDP growing from 16.13% in FY06 to 25.07% in FY24, and creating hundreds of thousands of much-needed jobs in the formal sector.

Despite its past performance, Bangladesh's growth trajectory is currently facing significant turbulence. The COVID-19 pandemic, followed by the Russia-Ukraine crisis, has led to persistent global inflation, resulting in subsequent monetary tightening and considerable pressure on the Bangladeshi economy. Inflation has spiked up to above 10%, eroding people's purchasing power, while foreign exchange reserves have depleted from USD 46 billion in 2021 to around USD 20 billion as of February 2025. Bangladesh Bank has been forced to hike the policy rate to 10%, resulting in bank interest rates spiking to ~15%. Bangladesh currently faces significant challenges in securing sufficient foreign currency for uninterrupted energy imports, which threatens industrial production and employment.

The manufacturing sector, the primary engine of export growth and employment generation in Bangladesh, has been especially affected by these forces. The global economic slowdown resulted in softer demand in export markets, including the crucial Ready-Made Garments (RMG) sector. Simultaneously, disruptions stemming from political instability and worker unrest impacted logistics and industrial production, further squeezing timelines and raising operational costs. These immediate shocks were in addition to existing domestic industrial challenges, including a lack of reliable and affordable energy, limited transport and port infrastructure, public policy inadequacies, especially related to taxation, and a persistent skills gap among the workforce.

The lack of reliable and affordable energy is a significant obstacle to the growth of the Bangladesh manufacturing sector. Many factories have been forced to shut down due to inadequate gas and electricity supply, leading to substantial losses for entrepreneurs and the banks financing them. At the same time, new industries are unable to start production due to the energy shortage.

This issue has primarily arisen from the government's inability to formulate a sustainable and realistic long-term energy policy. Previous energy policies have been criticized for being unduly influenced and have largely failed to ensure a sustainable, reliable, or affordable energy supply. The government must prioritize this issue and take steps to formulate a rational and realistic long-term energy policy that ensures affordable and dependable energy for Bangladesh in the years ahead.

Rational and predictable public policies are a basic requirement for the recovery and further development of the Bangladeshi manufacturing sector. Investors make investment decisions, plan for workforce development, and market expansion based on the existing regulatory framework. When policies related to taxation, energy, labor, or investment are subject to abrupt changes, it causes a high degree of uncertainty that dampens investor sentiment and severely hampers long-term planning. This instability discourages both domestic and foreign investment, increases operational risks, and stifles innovation and growth. Therefore, a steady commitment is required from policymakers to ensure that new regulations are transparent, introduced after adequate consultation with all stakeholders, and applied consistently over time. The present interim government has undertaken several groundbreaking policy measures, including the establishment of separate agencies for revenue policy and administration. The government must continue these reforms and ensure that they are sustainable and long-lasting through the engagement of the requisite stakeholders.

Comprehensive automation and digitization of government services will be a transformative step towards reducing bureaucracy and enhancing the efficiency of public services. This technological shift would yield the highest dividend in the field of revenue mobilization, where automated systems can improve accuracy, reduce revenue leakages, and expand the tax base. Digitization will also be a powerful tool to create a genuine level playing field for all businesses. By minimizing discretionary human intervention and standardizing procedures, it will become more difficult for non-compliant taxpayers to evade their fiscal responsibilities, ensuring a level playing field where compliant businesses, which diligently follow the law, are not unfairly burdened with excessive administrative processes or arbitrary tax liabilities.

The development of modern and efficient transportation, port, and logistics infrastructure is crucial to supporting the growth of the Bangladeshi manufacturing sector. Bottlenecks, such as congested transport networks, limited port capacity, and cumbersome logistical processes, act as significant impediments, directly inflating operational costs, extending delivery timelines, and eroding the competitive edge of Bangladeshi products in international markets. Addressing these challenges requires sustained, long-term plans and strategic investment in upgrading and expanding road, rail, and waterway connectivity. This will significantly boost port handling capacity and operational efficiency through modernization and automation, as well as streamline customs and logistical procedures.

Bangladesh is currently facing a significant skills gap in its workforce, a challenge that needs to be urgently addressed. The Fourth Industrial Revolution (4IR) and the increasing integration of Artificial Intelligence and automation necessitate a shift from reliance on labour arbitrage to a workforce equipped with advanced technological skills. This shift requires a comprehensive and immediate overhaul of Bangladesh's education system, particularly the Technical and Vocational Education and Training (TVET) system. The curriculum needs to be updated to emphasize digital literacy, complex problem-solving, critical thinking, and adaptability. Only through such focused efforts in human capital development can Bangladesh cultivate a globally competitive workforce capable of meeting the future needs of industry and driving sustainable economic growth.

The Bangladesh manufacturing sector today stands at a crossroads, where the government's actions in the present will determine whether this crucial growth engine can effectively expand and generate the millions of jobs our growing number of youth requires. Policymakers must urgently commit to comprehensive, strategic reforms and sustained investments across energy, policy stability, infrastructure, and workforce development. Immediate, transparent action with stakeholder engagement will secure a strong future for our manufacturing industries and the nation's advancement for decades ahead.