ASSIGNMENT

ON
COUNTRY RISK ANALYSIS OF BANGLADESH
(GLOBAL BUSINESS ENVIRONMENT)

SUBMITTED TO: GROUP 3 SUBMITTED BY:

Prof. Jagdish Shettigar Tarannum Aurora(20DM226)
Prof. Monika Jain V Soumith Reddy(20DM235)
Vaibhav Arora (20DM236)
Vrinda Maheshwari (20DM248)
Adarsh Kumar Agarwal (20DM274)
Pranav Bharti(20DM282)

Birla Institute of Management Technology Plot No 5

Knowledge Park 2, Greater Noida
 TABLE OF CONTENTS

S.NO PARTICULARS PAGE NO.

1 INTRODUCTION 3
2 COUNTRY RISK 4
ANALYSIS
3 RISK ASSESSMENT 7
4 SOCIAL 9
INDICATORS
5 DEMAND ANALYSIS 11
6 INVESTMENT 14
ANALYSIS
7 CALCULATION OF 16-18
COUNTRY RISK
8 FINDINGS WITH 19-20
CONCLUSIONS
 INTRODUCTION

Bangladesh is one of the countries located in Southern part of Asia and in the delta
region of Brahmaputra and Ganga rivers in the north-eastern area in India. It is one of
the densely populated country in the world and comprises mostly of Muslim people and

meters (39 feet) above sea level, and it is estimated that about 10% of its land would be
flooded if the sea level were to increase by 1 meter (3.3 feet). 17 per cent of the country
is covered by forests and 12 per cent is covered by hills. Straddling the Tropic of Cancer,
 COUNTRY RISK ANALYSIS
BANGLADESH

Bangladesh is a developing economy which is majorly dependent on the agricultural

sector. The economy has grown majorly in the industrial sector, specifically the Ready-
Made Garments Sector, over the years. The garment industry has now evolved to be a
major contributing factor to the country's GDP. In particular, industries involved in
natural gas mining and quarrying have also expanded in Bangladesh Significant
challenges, such as rising population and frequent environmental disasters, are
impacting the economy's growth rate. The country's overall financial risk is impacted by
the following sub-factors. Bangladesh's economy is an evolving market economy. It is
the world's 35th largest economy in absolute terms and the 30th largest in terms
of purchasing power parity; it is a rapidly growing market and is one of the "Next Eleven
Emerging Market" among the middle-income economies.

GDP

 Bangladesh's Gross domestic product has increased at a pace of 4.5 percent each
year on normal since 2004, because of instant piece of clothing fares,
settlements, and the homegrown farming area handling. Bangladesh's telecom
industry has seen quick development throughout the long term, getting high
speculation from unfamiliar organizations. The nation likewise has significant
stores of petroleum gas and is the seventh biggest gas maker in Asia

Bangladesh had the world's seventh quickest developing economy in the

principal quarter of 2019, with yearly real Gross domestic product development
of 1.3 percent.

 The statistics portray Bangladesh's genuine Gross domestic product development

from 2015 to 2019, with conjectures through 2025.

 We can see an abrupt decrease over the most recent three years in the
development pace of Bangladesh's (GNI) gross national income in the course of
the most recent decade. As a result, this is dangerous for the locale. Since their
public pay is declining, the economy could be hampered soon.
 Strengths of doing business in Bangladesh

Excellent Tele-communications network of E-mail, Internet, Fax, ISD, NWD & Cellular
services are some other plus points. Weakness of currency against dollar and the
condition will persist to help exporters.
1. Bank interest@ 7% for financing exports
 2. Convenience of duty free custom bonded w/house
3. Readiness of new units to enhance systems and create infrastructure accordant
with product growth and fast reactions to circumstances

FOREIGN TRADE
CONSUMER PRICE INDEX

POLICY

RISK ASSESSMENT

Growth crumbling but not collapsing

Due to the COVID-19 crisis, between March and May, the country was in lockdown, with
factories and public places closed and travel restrictions imposed, growth slowed. As the
Twin deficits contained despite the crisis
 Infrastructure projects under the ADP will continue to put a strain on the
government budget, in addition to increased spending to fight COVID-19.
 Tax receipts account for less than 10% of GDP. However, once activity returns to
pre-crisis levels, the new VAT regime, which has been in place since July 2019,
should allow them to increase.
 According to the IMF, the amount of public debt would remain manageable (more
than 60 percent is concessional debt). Commercial banks, especially government-
owned banks (where the ratio exceeds 30%), have a high non-performing loan
ratio, which could jeopardise financial stability.
 Owing to the country's dependency on imports, the trade balance (-5.5 percent of
GDP) is structurally in deficit (capital goods, energy and cotton).
 Exports have increased, owing to the competitive and expanding ready-to-wear
market, but they remain reliant on the economic conditions of its trading partners
and the progress of the health crisis.
 Workers' remittances (5.6 percent of GDP), which had been disrupted by the
Middle East's recession, have resumed since July 2020, which will help to reduce
the trade deficit.
 Increased FDI and foreign assistance will help to sustain the current account deficit.
Foreign exchange reserves, which amount to around 5.5 months' worth of imports,
provide a sufficient safety net.

Fragile political stability despite continuity at head of state level

Since its founding in 1971, the country has undergone many military coups.
In Bangladesh, political peace is threatened by tensions. The dangers, along with high
levels of corruption, lead to Bangladesh's poor business environment. The key
governance problems will remain poverty and growth, in addition to the battle against
COVID-19. According to the government's "Vision 2041" programmed, the country aims
to become an upper middle-income country by 2031, with a GDP per capita of between
USD 4,000 and USD 12,500 (World Bank definition), and a high-income country by 2041.
Internationally, Bangladesh will continue to focus on relations with China and India.

Social Indicators
Population:
Before starting a new venture, an investor should consider all of these demographic
factors. The demand for business is represented by the population. A larger market could
simply be the result of high population growth. However, because of lower per capita
income the services in an overpopulated region and residents' purchasing power remains

Education:
Bangladesh currently has a literacy rate of 57.53 percent. This means that 42.47 percent
of the population can no longer read or write. However, there is a significant difference
in literacy rates between men and women, as well as between urban and rural areas.
Bangladesh spends 2.3 percent of its GDP on education, compared to 3.5 percent for the
rest of the world. Bangladesh's education spending rose from Tk.120 billion in 2006 to
Tk.192 billion in 2012. (Cooke, 2013). Any country's social growth is hampered by
illiteracy. Illiterate people are unaware of their rights, ignorant of the world of science,
and a burden on the development process. So by increasing the literacy rate the which
implies in lowering its social risks for international investors.

Health:
Bangladesh has 59 medical colleges, 13 nursing colleges, 69 nursing institutes, 17
medical assistant training schools, and 16 institutes of health technology spread
throughout the region. According to a World Bank study released in 2010, overall
healthcare spending as a percentage of GDP was just 3.35 percent in 2009. There were
four hospital beds per 10,000 people. Bangladesh has made considerable progress in the
health sector since independence, and the government has followed a health

Poverty and Income Distribution:

The number of poor people in Bangladesh has decreased from nearly 63 million in 2000
to 55 million in 2005, and finally 47 million in 2010. Poverty has been decreasing by 1%
each year for the past few years (World Bank, 2013). According to the Bangladesh
Bureau of Statistics' 2010 Population and Household Census, about 17.6 percent of the
population lives in poverty (2011). This improvement is due to increases in formal and
informal labor wages, demographic shifts, and women's participation in the workforce.
Bangladesh is facing two opposite directions of social danger as it makes progress in
reducing poverty and increasing income inequality. Poverty reduction is a sign of social
progress that lowers social risks, but rising income inequality raises social risks by
signaling an imbalanced social growth that can lead to social unrest and poorer standard
of living of the mass population of the country.

Labor Force & Unemployment, Urbanization:

Bangladesh is transitioning from an agrarian economy to one focused on manufacturing
and services. Women's involvement in the labor force rose significantly from 21.1
percent in 2000 to 30.3 percent in 2010 (World Vision, 2011). During this time, the
overall labor force grew by 39.3% and total jobs grew by 38.7%, but the female labor
force doubled and their employment grew by 105.1%. Furthermore, between FY6 and
FY10, there were 2.9 million Bangladeshi migrant workers, accounting for 40.2 percent
of the incremental labor force (International Labor Organization, 2012). Bangladesh is
once again grappling with the question of rapid population urbanization (Zaman et al.,
2010). The quest for jobs is one of the primary reasons for this migration of rural
residents to major cities. The World Bank (2012) estimated that 3,94,82,811 people, or
about 28 percent of the total population, lived in urban areas in 2010, with an
urbanization growth rate of 2.85 percent (Kawsar, 2012). While a country with a large
unemployment problem could seem desirable for cheap labor, there is always the risk of
social unrest, which could lead to a slew of sociopolitical crises. Furthermore, a faster
pace of urbanization could put strain on limited urban resources and opportunities, as
well as create social imbalances in cities. Businesses face increased social risks as a
result of these circumstances.
 DEMAND ANALYSIS

The demand in a particular country is directly related to income and income

distribution. The greater the per capita income of a country, the greater will be the
demand.

Per Capita Income

Bangladesh’s Per capita income is on a continuous increasing trend. According to

predictions, Bangladesh will even surpass India in terms of per capita income making an
average Bangladeshi richer. Increasing Trend of per capita income shows that the
demand will also increase in a similar trend.

Since Demand ∝ Income

Bangladesh's GDP per capita income is estimated at US$5739 (PPP) and

US$2064 (nominal) according to the IMF data, 2020.
GNI(Gross National Income)

The GNI per Capita trend shows that it is on a continuous increment from 2017 which
went up to 7.167. The data clearly shows that the national income per capita is
increasing in Bangladesh which indicates that there is greater personal disposable
income.

Comparison of the Percentage change in GNI in Bangladesh in recent years.

 GNI per capita for 2019 was $1,940, a 10.86% increase from 2018.
 GNI per capita for 2018 was $1,750, a 15.13% increase from 2017.
 GNI per capita for 2017 was $1,520, a 10.95% increase from 2016.
 GNI per capita for 2016 was $1,370, a 12.3% increase from 2015.

Income Distribution

The income distribution is measured in terms of Gini Index. Higher the Gini index higher
is the inequality in the income distribution of the country.

It is measured from 0-1 (0% to 100%)

Despite high growth rate in Bangladesh and also increasing income, Inequality in income
distribution is a concern for the country. The Gini index of Bangladesh on a scale of 0-
100 stood at 32.40 in the year 2016 as per the estimates of World Bank.
Demand across various sectors

As the income trends show that Bangladesh is a potential country to invest in. Few of
the sectors which are the potential business sectors having high demand include
Agriculture, Ceramics, Electronics, Power and Gas, Frozen Food etc.

The power sector has a huge potential in itself. Bangladesh’s energy demand has been
increasing at an average pace of 10% over the last decade.

SUPPLY ANALYSIS

Bangladesh is one of the countries located in the Southern part of Asia and in the delta
region of Brahmaputra and Ganga rivers in the north-eastern area in India. It is one of
the densely populated country in the world and comprises mostly of Muslim people and
85% of total population is Bengali.

Bangladesh is quite rich in fertile flat land. Most of it is less than 12 meters (39 feet)
above sea level, and it is estimated that about 10% of its land would be flooded if the
sea level were to increase by 1 meter (3.3 feet). 17% of the country is covered by forests
and 12 per cent is covered by hills. Straddling the Tropic of Cancer, Bangladesh's climate
is tropical with mild winters from the month of October to March and hot, humid
summers from the month of March to June.

Bangladeshi governments, regardless of their ideological bases, have made great strides
in improving maternal health and providing health services. Health care. Basic. These
initiatives have also helped lower child mortality rates, reduce widespread malnutrition,
and prevent a wide variety of diseases. Major free trade agreements of Bangladesh are
9 in number which are:

● Bangladesh-Brazil Free Trade Agreement

● Bangladesh-India Free Trade Agreement
● Bangladesh-Thailand Free Trade Agreement
● BIMSTEC Free Trade Agreement
● Bangladesh-Pakistan Free Trade Agreement
● Bangladesh-Bhutan Preferential Trade
● Bangladesh-Sri Lanka Free Trade Agreement
 ● Bangladesh-Turkey FTA
● Bangladesh-China Free Trade Agreement

REASONS TO INVEST IN BANGLADESH

The recent economic development of the country has been a substantial one. It has
been considered as the new Asian Tiger according to “The Economist''. The reasons to
invest in Bangladesh are as follows -

1. Availability of Workforce at a low cost:

A foreign company who wants to establish their business in Bangladesh can reap
the benefits of a low-cost skilled labor force. The country has an enormous
population, which includes a lot of them falling in the working age category. As of
2018, Bangladesh has a median age of 26. Bangladesh is currently having a
demographic dividend. The labour here are educated, skilled, fluent in
communication. Representing one of the competitive edges over its south Asian
counterparts. The labour cost in Bangladesh is half of that of China, Indonesia.
The labour force of this country is considered their backbone. Most of them work
in the informal sector, indicating presence of opportunity for production related
activities. Also, a number of young people graduate from universities with a
technical background, indicating an opportunity for Information Technology
companies, and even outsourcing.
2. Favorable Trade Policies:
Any company who wants to do business in a foreign country, would prefer liberal
trade policies. Bangladesh is known as the one of the most liberal and investor
centric. No prior approvals are required, any limits on participation are not there.
Regarding trade the country has duty free, and quota free access to a lot of
developed countries like The European Union, Canada and many more. The
country has also tied up with many countries to avoid double taxation. Also,
there are certain fiscal benefits in its economic zones like that of exemption from
custom duties, taxes on power and local content.
3. Availability of Raw Materials:
The government of Bangladesh and their banks have implemented policies for
buying raw materials. It has been an addition to the apparel industry of the
 country. Also, there is a presence of established supporting industries. Most of
the raw materials that are required for production are easily available. Implying
that it will be easier for foreign companies to acquire raw materials. Regarding
the textile sector, there are plenty of mills in the country with a huge capacity of
produce.
4. Ease of Doing Business:
It is a ranking system indicating the favorability of the regulatory environment
for a firm to start a business in a country. The country is assessed on many
indicators and ranked based on them. The rank of /Bangladesh in this index
improved from 176 (in 2018) to 168 (in 2019). The scores for the country
improved in aspects of starting a business, permits relating to construction,
power supply, registration of property and credit facilities. The government of
the country intends to make starting a business inexpensive through reducing
fees regarding certain registrations. They also intend to focus on digitation and
development of human capital. Improvement of the business environment is
considered a breakthrough to support the private sector. The firm who intends to
establish a business in Bangladesh should be aware of the initiatives taken by the
government of Bangladesh to enhance their experience.
5. Location:
Bangladesh is situated in the southern east of Asia. The country is a neighbor to
powerful countries like China, India. The capital City “Dhaka '' is the hub of
finance and commerce and is considered one of the largest economic centers of
southern-Asia. The country is located on the coast of Bay of Bengal, enabling it to
trade among many countries.
 CALCULATION OF COUNTRY RISK

Assumption of weights and ratings:

Political factors

 Political Instability: Political instability has been a major concern of Bangladesh in the
past but the current scenario shows that the government is quite stable and the
opposition party has become weak in the recent years.
Therefore, we are allotting 50 % weight and 2 on rating on a scale of 1-5 (1 for low risk
and 5 is for high risk
 Corruption: Corruption rank of Bangladesh is 146/180.This shows that the country is at
the high risk of corruption and also it is a major factor which affects the foreign
investments in a country. Therefore, we are giving 23% weight and 4 on rating scale.
 Customer view: In recent years, people have adopted foreign products very easily and
people are quite friendly to MNC products. There is high demand of foreign products.
Therefore, we are giving 20 % weight and 2 on rating scale
 Government view: As government is quite flexible in doing new businesses with the
MNC’s and open to foreign investments. Hence, the risk associated with this is also less.
Therefore, we are giving 7 % weight and 3 on rating scale

Financial Factors

 Interest Rate: Over last few years, the interest rate for the MNC’s is in a stable
condition (Neither increased not decreased) which is suitable for the investors to
invest in the businesses in the country.
Therefore we are giving 15 % weight and 3 rating to this factor
 Inflation Rate: From the trend analysis, we can see that the inflation rate is on a
continuous hike. It stood at 5.65 % in 2020 and is nearly 5.88% estimated in 2021
which is a cause of concern. Therefor we are giving 35 % weight and 5 rating to
this
 Exchange rate: As the exchange rate risk is very high in Bangladesh, that’s why
the highest weight is given to exchange rate with the inflation rate. Companies
must consider this risk before entering in the market of Bangladesh. Therefor we
are giving 30% weight and 5 rating to this factor.
 Competition: As the risk associated with this factor is average compared to the
other risk factors. And considering the adaptability of the people of this country
 about foreign products an average weight has been given to this factor. Therefor
we are giving 20% weight and 4 rating to this factor.

Calculation-

We are now calculating the entire country risk of Bangladesh in terms of investments
and business potential by using the weights and rating given above.

The entire process is a 3-step process –

 Firstly, we have calculated the political risk and it’s total rating.
 Secondly, we have calculated the financial risk and it’s total rating.
 The last step is to calculate the Overall country risk by using the ratings in the first
2 steps.

Calculating Political risk:

Risk Indicators Assigned Rating (2) Weight assigned as Weighted value

per importance (3)
(1) (1-5) (4) = (2) * (3)

Political Instability 2 50% 1

Corruption 4 23% 0.92

Customer view 2 20% 0.4

Government View 3 7% 0.21

Total Political 100% 2.53

Rating
Calculating Financial Risk:

Risk Indicators Assigned Rating (2) Weight assigned as Weighted value

per importance (3)
(1) (1-5) (4) = (2) * (3)

Interest Rate 3 15% 0.45

Inflation Rate 5 35% 1.75

Exchange Rate 5 30% 1.5

Competition 4 20% 0.8

Total Financial 100% 4.5

Rating

Country Risk:

Political Risk 2.53 40% 1.012

Financial Risk 4.5 60% 2.7

Overall Country - 100% 3.712

Risk

So, the overall country risk rating of Bangladesh is 3.712

 FINDINGS
While analyzing the risk of the country for the business of MNCs, we have found the
following related things:

RECOMMENDATIONS
We also have some recommendations for the companies who want to do business in
this country or who are doing business presently in this country.

 Bangladesh is a bit riskier for the companies who want to start business in this
country, especially for foreign direct investments. But the situations are changing
from past years and a positive growth has been seen in past 5 years.
 If a MNC has already decided to do business in this country, then it will be wiser
decision from them to invest less at this moment. Because there are huge
competitions in the present market.
  Proper and regular update is very much essential for the Companies about the
country risk of this country because the situation is changing in a regular basis.

These are some recommendations about the country risk for the Companies and
individual investors who want to do business in Bangladesh. It will be better for them
if they follow these suggestions and periodically review the risk and update this
information. Then, business in this country will be easier for them in this country, if
they can match with the pattern of condition changes in this country.

CONCLUSIONS
For foreign investors to do business in any country, a country risk analysis is needed. If
investors invest funds without first conducting a thorough risk analysis of the country,

from the above analysis Bangladesh is now a suitable place for investment, but it can
still improve a lot in different aspects. And it can be a better place to Investor’s.