Beyond FDI: Transforming Bangladesh into a global manufacturing powerhouse

Illustration: TBS

Bangladesh stands at a critical juncture in its economic journey. With a GDP of approximately $450 billion, the country has long relied on its dominance in the ready-made garments (RMG) sector and low-cost labour. 

However, this growth model is nearing its limits. As wages rise and global competition intensifies, Bangladesh faces the risk of falling into the middle-income trap, unable to transition into high-value, innovation-driven industries.

At the heart of this challenge lies a capability deficit rather than an investment shortfall. Policymakers often stress the importance of attracting foreign direct investment (FDI) to drive manufacturing growth, but FDI alone cannot deliver transformative results. 

While it may bring short-term benefits, FDI often fails to foster the self-reliant ecosystems crucial for sustainable development. Profits are repatriated, intellectual property (IP) creation remains negligible, and reliance on imported machinery persists.

To address this capability gap, Bangladesh must prioritise the development of indigenous expertise, particularly in designing and producing high-precision capital machinery. Without these foundational capabilities, the country cannot achieve the agility and innovation needed to ascend the value chain.

By addressing these challenges, Bangladesh can unlock its demographic dividend, sidestep the middle-income trap, and ensure sustained long-term growth.

FDI alone is not the answer

FDI is often heralded as the key to industrial growth, offering job creation, technology transfer, and export opportunities. However, India's Make in India initiative highlights its limitations. 

While attracting significant FDI, the program failed to reduce India's dependence on imported machinery, exacerbating trade deficits. Furthermore, FDI projects struggled to generate meaningful knowledge transfer or IP creation.

Bangladesh must avoid these pitfalls. Over-reliance on FDI prioritises foreign investor interests over national development goals. Dependence on imported machinery drains foreign reserves and stifles local innovation. Manufacturing growth is not an investment banking challenge; it is a capability challenge. 

To ensure lasting success, Bangladesh must train its focus from simply attracting capital to also drastically building domestic capabilities. When domestic competence is established, capital will naturally follow, offering greater advantages.

This effort would yield patents and IP, benefiting universities and private sector collaborators such as Walton. A collaborative framework involving the government, academia, and industry could create a self-sustaining pipeline for funding, curriculum enhancement, and R&D.

The missing link: Indigenous machinery production

To address this capability gap, Bangladesh must prioritise the development of indigenous expertise, particularly in designing and producing high-precision capital machinery. Without these foundational capabilities, the country cannot achieve the agility and innovation needed to ascend the value chain.

Global manufacturing competitiveness hinges on the ability to produce high-precision capital machinery, the backbone of industrial ecosystems. Presently, Bangladesh relies heavily on imported machinery, which limits flexibility and siphons resources.

Although the nation is a global leader in RMG, textiles, and knitwear, the processes and machinery used in these sectors differ markedly from those needed to manufacture advanced consumer goods such as electronics and appliances. 

Producing such goods requires expertise in tooling, die production, and working with polymers and speciality metals. Developing this expertise is essential for diversifying production and reducing over-reliance on a single sector.

Purchasing foreign machinery offers quick fixes but restricts innovation. Conversely, domestically produced machinery allows manufacturers to customise, innovate, and adapt to changing demands. Making such machinery widely accessible will diversify Bangladesh's export basket and drive sustainable growth.

The proposed moonshot project would assemble a task force of 500 top engineers, scientists, and specialists from Bangladesh's leading technical universities, augmented by experts from the diaspora community. 

This initiative, backed by substantial funding, would establish R&D facilities to design and produce advanced machinery. By studying and improving upon existing machinery, the task force could develop indigenous alternatives tailored to Bangladesh's industrial needs.

This effort would yield patents and IP, benefiting universities and private sector collaborators such as Walton. A collaborative framework involving the government, academia, and industry could create a self-sustaining pipeline for funding, curriculum enhancement, and R&D. This approach would not only produce high-quality machinery but also lay the foundation for a vibrant innovation ecosystem that supports long-term growth.

What it will take to succeed

This ambitious initiative requires a multidisciplinary team and advanced technologies. Mechatronics, the integration of mechanical engineering, electronics, computer science, and control systems, will be crucial for developing advanced machinery such as CNC machines, injection moulding machines, metal stamping machines, and lathe machines. These tools provide the precision, automation, and adaptability essential for modern manufacturing.

The project will involve mechanical engineers for physical components, electrical engineers for control systems, and software engineers for programming. Materials scientists will play a critical role in developing specialised alloys, polymers, and composites. 

For example, components like hydraulic systems, roller spindles, and tool changers can be produced locally, while advanced sensors and servo motors may initially require partnerships with global leaders like Siemens and Mitsubishi. These collaborations will facilitate knowledge transfer, while domestic R&D will focus on gradually developing local alternatives.

By fostering a self-sufficient ecosystem, Bangladesh can enable its engineers to not only design and assemble machinery but also understand its intricate components. With sustained R&D investment, the country can reduce reliance on imports and advance toward indigenous machinery production.

Learning from China: Agility and ecosystems

During my years as a buyer, outsourcing specialist, and production planner during the North American Free Trade Agreement (NAFTA) and outsourcing era in the 1990s, I observed manufacturing practices in the U.S., Canada, Mexico, China, and India. Chinese manufacturers stood out for their agility and innovation, excelling in rapid tooling and re-tooling through in-house or nearby tool-and-die specialists. 

This ecosystem enabled quick prototyping, testing, and seamless transitions to mass production. 

Even with language barriers, Chinese foremen executed engineered shop drawings with precision. Bangladesh must replicate this model, developing a network of specialists to foster rapid innovation and efficient production processes.

The role of material sciences

Material sciences underpin manufacturing excellence. Buyers increasingly look to manufacturers for innovative materials and processes that enhance performance and reduce costs. Research into polymers, alloys, and composites can provide Bangladeshi manufacturers with a competitive edge, enabling them to propose novel solutions.

Bangladesh must also invest in lithium battery research and alternative technologies for electric vehicles, tools, and consumer electronics. This includes studying anode materials like graphite and silicon, exploring domestic sources such as graphite deposits in Dinajpur, and emphasising battery recycling to reduce import dependency.

Empowering education through a top-down approach

A moonshot project to design advanced machinery could revolutionise Bangladesh's education system. While critics may argue that the current system lacks the foundation for such ambitions, this initiative could bridge the gap. By generating new knowledge, the project would create practical examples that inspire students at all levels, integrating STEM education into real-world applications.

Experts could host workshops, engage with schools, and incorporate hands-on learning experiences, fostering a technically skilled workforce to drive Bangladesh's future growth.

Developing brands and IP for long-Term Resilience

Domestically produced capital machinery would empower local innovators to diversify products and establish homegrown brands. While FDI-driven projects primarily produce goods for foreign brands, domestic brands could achieve global prominence, creating enduring economic value.

As the population ages, IP generated by these brands will become a vital revenue stream. Licensing production to other countries would ensure continued economic benefits, making high-value production and IP creation a long-term necessity.

The future of Bangladesh's economy depends on moving beyond low-cost labour to embrace self-reliance, innovation, and intellectual property development. This journey is not solely about attracting FDI but about fostering an ecosystem where knowledge thrives, technology is owned, and growth is sustainable.

The time for bold, visionary action is now.

Mir Shafi. Sketch: TBS

Mir Shafi is a Bangladeshi-American with a background in geopolitics, international relations, and manufacturing. He has extensive experience in industrial production planning and procurement, having worked closely with Chinese and North American manufacturers during the NAFTA era. He is also a former policy researcher at a think tank, focusing on education, healthcare, and law enforcement. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard