Developing Bangladesh’s capital markets to provide an engine for investment, jobs and growth

Since independence 50 years ago Bangladesh has been a remarkable economic success, building on prudent Government policy choices and the dynamism of the private sector, especially over the last two decades.

The country has shown it can leverage its comparative advantage in labour-intensive production to exploit global market opportunities and expand the export base.

For two decades before the pandemic, annual GDP growth averaged over 6%, the extreme poverty rate fell by half, child mortality dropped by 60%, life expectancy increased by seven years, and per capita income nearly doubled and is now higher than some of its neighbours.

As a result of these achievements, Bangladesh is on course to graduate from the Least Developed Country (LDC) group of countries in 2026. This is a major milestone, but the longer journey to prosperity continues and substantial social and economic development needs remain. Developing new channels of investment will spur business growth and job creation. The Government of Bangladesh's Perspective Plan 2021-41 sets the ambitious objective of becoming an Upper-Middle-Income country by 2031, and a High-Income Country by 2041. Investment-led private sector growth is vital for these targets to be met.

Making this happen will require continued investment, and greater access to private capital. But Bangladesh's capital markets are under-developed to meet the scale of investment required. The markets must seize the opportunity to modernise to meet the long-term financing needs of the country by providing long-term financing through bonds and other financial instruments.

Private investment can help start-ups to scale up and established businesses to expand, generating exports and creating quality jobs, which are much needed by Bangladesh's young population. Deepening and broadening of Bangladesh's capital markets is critical to this. Lack of capital market development will not only hinder low-cost and long-term financing and stymie investment, it will also hinder skills development, technology transfer and economic diversification, all of which are essential to sustain Bangladesh's impressive economic growth trajectory.

For local capital markets to flourish, there is a need to attract both local investors, such as pension funds who need long-term assets and can provide patient capital, and international investors who bring low-cost financing and global know-how. Bangladesh currently has significant untapped absorptive capacity to mobilise foreign savings, given its low level of foreign debt. Low international interest rates make this even more attractive. This could be a win-win scenario, with Bangladesh meeting its financing needs and international investors benefitting from the growth, diversification and returns Bangladesh can offer to their portfolios.

To underline the potential of the capital market and the significance of capital market reforms, we in the British High Commission hosted a webinar titled "Bangladesh Capital Markets: A New Frontier" on 15 September 2021. Honourable Minister of Planning, M. A. Mannan, MP, and UK Prime Minister's Trade Envoy for Bangladesh, Rushanara Ali MP, were among the speakers, and we also heard from the Chairman of the Bangladesh Securities and Exchange Commission, senior Government officials and leaders of public and private sector organisations in Bangladesh. The webinar explored the financing needs of the private sector, the Government of Bangladesh's ambitions and plans to support broadening and deepening of the country's capital market, and the UK's commitment to work with policymakers, regulators, and private sector to achieve reforms.

The UK can bring together a range of expertise to assist Bangladesh. A spectrum of UK capabilities is available, including: the CDC, the UK's development finance institution; GuarantCo, which is funded by the UK, IFC and other donors and provides innovative local currency credit solutions to banks and bond investors; UK Export Finance (UKEF), which provides finance and insurance for UK exporters; financial education providers; and, above all, the world-leading private sector resources and expertise of the City of London.

The City of London operates at the heart of the global capital markets and can be instrumental in bridging Bangladesh's investment gap, estimated at around $20 billion a year for the next twenty years. London is a leading market for local currency bond listings from emerging and frontier markets. The City of London can also share knowledge and expertise on market regulation, legal frameworks, and prudent oversight. 

The successful issue of the inaugural Bangladesh Taka "Bangla" Bond on the London Stock Exchange for PRAN Group in November 2019 was an important milestone and a good indication of what can be achieved. With the path now established, I hope more issuance will follow. A sovereign bond would provide an important benchmark and support future corporate bond listings. Governments and businesses from around the world have chosen to list their bonds on the London Stock Exchange, recognising it as a preeminent gateway to global capital markets and investors.

However, the availability of financing is only one side of the equation. Bangladeshi and international firms need to invest at scale. Research shows that Bangladesh has a difficult business environment. The UK is the second largest cumulative investor in Bangladesh. UK firms, both operating in the country and wanting to come in, flag investment climate and business environment challenges. The UK's development assistance over the past ten years has helped in investment climate reforms. We hope to see that support extended to reform and modernisation of the capital markets.

As the Honourable Planning Minister and others made clear, the Government of Bangladesh recognises the need to develop a more sophisticated capital market and attract private sector investment to build on its track record of impressive growth and provide greater resilience to the economy. The UK welcomes this ambition and stands ready to provide support as part of a new and modernised UK-Bangladesh economic relationship.

 The UK-Bangladesh relationship has been strong since the birth of the nation 50 years ago. This deep historic relationship now includes trade, investment, defence, security, and shared political objectives in meeting global challenges like climate change. We will continue working together to strengthen this partnership in new ways as Bangladesh works towards making its development ambitions a reality.

Robert Chatterton Dickson is the British High Commissioner to Bangladesh