Pharmaceuticals, economic zones brighten Bangladesh outlook

DHAKA — As production costs rise in China, Bangladesh grows ever more important as a supply center for Western clothing brands and, increasingly, drug companies. Beximco Group, the South Asian country’s largest private conglomerate, is a major player in both sectors — along with porcelain, tourism, banking and transport.

The group’s apparel customers include Zara and H&M. Beximco Pharmaceuticals, meanwhile, was the first Bangladeshi company to list in London and has produced drugs under license from companies such as GlaxoSmithKline and Novartis. Beximco holds a 30% stake in Dhaka-based International Finance Investment and Commerce Bank as well.

Salman Rahman, who co-founded Beximco with his brother, Sohail, serves as the group’s vice chairman and IFIC’s chairman. He is also president of the Bangladesh Association of Pharmaceutical Industries; chairman of the Bangladesh Enterprise Institute; a private-sector adviser to the country’s ruling party; and a former director of the Dhaka Stock Exchange.

Salman RahmanRahman in 2001 ran unsuccessfully for parliament. In the wake of a military coup, he was jailed in 2007 for alleged forgery to secure loans. About a year and a half later, the charges were dropped and he was released.

Last year, Rahman sought support from the Bank Bangladesh, the central bank, for the restructuring of 56.3 billion taka ($722 million) in Beximco debts to four state banks. In late January, the bank announced a new policy to govern such major restructurings.

Rahman recently sat down with the Nikkei Asian Review to discuss Bangladesh’s economy and potential. Excerpts from the interview follow.

Q: The garment industry is the nation’s largest exporter. Would you say that it gets more support than other sectors?

A: What happened with the garment sector is that it caught on. And you know what they say, nothing succeeds like success. So it was successful, a lot of entrepreneurs got into it, and it was the sector that grew. And now people are concentrating on other sectors and … because of the government, diversification is taking place.

The garment industry has matured and because it forms such a large part of the economy, [the garment producers] have more influence with the government as far as policy support goes.

I think what is needed, and what the government is working very hard on, is to develop infrastructure. What the government is doing is [focusing on] special economic zones. In setting up, developing and establishing SEZs, the government will provide the land and then [investors will] develop them.

Once that happens, I think other sectors will come up. What I think is really needed from the government is the policy support on infrastructure. They have done a fantastic job as far as the power sector goes. You know we used to have 14-hour, 15-hour blackouts every day. People have forgotten that now.

One of the areas that I think, in the next few years, will be very, very interesting is pharmaceuticals. Pharmaceutical exports are about to take off. And we are becoming more diversified. The amount is small but I’m told we export something like $250 million worth of flowers every year. We are building ships and bicycles. What we need is for other sectors to grow.

Q: Has enough been done to ensure the future of the country’s garment sector?

A: A lot has been done and it’s a continuous process. [The sector] has faced challenges not once, it has faced challenges many times. The first I remember was child labor; now that’s been taken care of. Then it was the Multi Fiber Arrangement. When it ended in 2004, the quota system on the amount that could be exported by developing countries went away, and the Bangladesh garment industry was expected to be hurt. That didn’t happen. And then we had the fire and the [2013 Rana Plaza] building collapse.

So these are challenges that we keep facing, but the fundamentals of the business are very strong.

Q: Prime Minister Sheikh Hasina has been very critical of Western interference, in particular with unionization. Is this a concern for the business community or is it confined to politics?

A: It is an issue, or at least I feel very strongly about this. I feel that this is basically a double standard, because as you know, in the U.S., only 15% of the workforce is unionized. You don’t have unions in your own country but you want to impose them on others? I find that a bit strange.

Q: The Bangladesh stock market has had a rocky history. Is it a safe bet now?

A: Actually, the problem with the Bangladesh stock market is that it is a frontier market. It is not a mature market, and the biggest problem is that you don’t have institutional investors. You have small retail investors, and they aren’t really well-informed. So when they go into a stock or come out of a stock, it is mainly based on rumors rather than fundamentals.

Since the crash in 2010-2011, the government has taken a number of steps. Some of them have helped, some of them haven’t. Every time the market goes up and down and crashes, people who are losing money need to blame it on somebody. Basically, they should blame it on themselves.

Now, what has happened recently is the demutualization of the stock exchange, with the hope that institutional investment would grow. But I haven’t seen any signs of that happening.

Q: Does the weakness of Bangladesh’s institutions discourage large-scale investment?

A: I wouldn’t say that. I would say that a lack of trust is only [an issue] in the capital markets. Other institutions are quite strong. For example, the central bank is a very strong institution. We have a proper judicial system, which is based on the British system. So everything is in place except foreign direct investment, which is increasing gradually.

Bangladesh is a growing country, it is a developing country. We have had 6% year-on-year growth for the last 15 years. … In all parts of the economy, the private sector is there. There was a time when everything was nationalized and the government used to do everything. But there has been a complete 180-degree change from that.

A lot of people criticize the state-owned banks, but I would say that to a large extent, the state-owned banks are responsible for the development of the economy to where it is today. Beximco is a good example. The amount of money we have borrowed from them, no private-sector lender had the capital adequacy to lend like that. We had to go to the state-owned banks because they were the only ones, at that time, big enough to lend that kind of money. Now of course we have some private-sector banks who have come up. But the absolutely unbelievable success that Bangladesh has had in agriculture is very arguably due to the state-owned banks.

Q: The government seems to have chosen to work with a number of large, state-owned enterprises from former Eastern bloc nations. Is this a trend, and is this positive?

A: I think it is something the government is doing that is very admirable. Because our foreign policy is to be a friend to everybody and enemy to none, we should do business with everybody, and that’s exactly what this government is doing. So while we placed a huge order for Boeing jets, and while we have given and continue to give gas concessions for exploration contracts to [companies] like Chevron and ConocoPhillips, we are dealing with the Chinese, the Russians, the Indians, the Germans, the U.K. and other Europeans.

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