Why Bangladesh is experiencing an economic miracle despite the corona crisis

It was difficult for Thomas Hoffmann to even find a buyer for his knitting machines in Bangladesh. At the time, labour was so cheap that it was hardly worth buying machinery, remembers Hoffmann who runs the local branch of the Baden-Württemberg mechanical engineering company, Stoll in Dhaka.

But the business situation has changed radically: Two years ago, Bangladesh, measured by the number of units sold, became the world's most important sales market for the company, which supplies its machines to more than 70 countries.

Hoffmann continues to see great potential: "I am sure that the market will continue to grow here in the years to come," he says.

The experience of the German manager contradicts the image of Bangladesh that has established itself in the West: Extreme poverty, low wages and natural disasters have long shaped the international perception of the South Asian state.

But the reputation as Asia's poor house is no longer true: Bangladesh has developed into a boom state in recent years. Even in the corona crisis, the country's economy is growing much faster than in other parts of the region. Good business with Germany is partly responsible for the upswing. Now the government in Bangladesh is targeting German investors.

Higher per capita income than India

With its most recent economic development, the country with a population of 165 million presents itself to international entrepreneurs as the best in its class: The International Monetary Fund (IMF) expects an economic growth of 3.8% in Bangladesh for the crisis year 2020 – by far the highest value in the whole of Asia.

Previously, the country's economic output had increased by more than 6% every year since 2011. In 2019 it was even more than 8%. As a result, the United Nations will recommend in February that Bangladesh be removed from the list of the least developed countries.

The development is causing a stir on the Indian subcontinent: According to data from the IMF, Bangladesh overtook India in per capita income in 2020.

"If an emerging country develops positively, that's obviously good news," commented the former chief economist of the World Bank, Kaushik Basu, who came from India. "But it's shocking that India, which was 25% ahead five years ago, is now behind."

There are many reasons for Bangladesh's successful race to catch up: the country benefits from around 10 million workers abroad, who, according to World Bank estimates, recently sent a total of around $20 billion back home. That corresponds to almost 7% of the total economic output.

In addition, investments in the social and educational system are considered essential factors for economic advancement. But an industry that has often been scolded also played a central role: Bangladesh's textile industry.

Bangladesh is the largest fashion manufacturer in the world after China. The industry recently employed around four million – mostly female – employees and represented more than 80% of Bangladesh's exports. With a share of more than 13%, Germany is the main customer – ahead of the USA.

The deliveries go to companies such as Kik, Aldi, Lidl and Tchibo. The companies have been criticized for years because of poor working conditions at their suppliers. The collapse of the Rana Plaza textile factory with more than 1,100 deaths in 2013 marked a low point.

Fashion industry in Bangladesh: More security

However, the pressure from European branded companies on factory owners has brought positive changes since then. "I think great progress has been made since 2013," said Dan Rees, who heads the International Labor Organization (ILO)'s Better Work program.

There is still a need for improvement. "The country's fashion industry is now a safer place than it used to be." However, the corona crisis has led to the loss of tens of thousands of jobs in the industry in recent months: manufacturers suffer from the fact that hardly any new customers in Europe and America are created during lockdowns to buy clothing.

In April 2020, the country's textile exports fell by more than 80% and in May by more than 60%. The second coronavirus wave in Europe gave the factories another job aggression.

Stoll manager Hoffmann is also feeling this: "We have hardly been able to sell any machines since April." But he is optimistic about 2021: After a long dry spell, customers have already shown interest in new machines again.

"If only half of these deals are realized, I'm already satisfied," says Hoffmann. The economic upswing in the country is still noticeable even in the difficult corona year: "There is no corner in Dhaka that is not being built," he says. "Every year the streets get fuller with the cars of the growing middle class."

A large part of the vehicles are imported. With the aim of diversifying the business model in her country, the government of Prime Minister Sheikh Hasina has long been trying to attract plants from foreign automobile manufacturers – and is also negotiating this with German companies.

The head of government's economic policy advisor, Salman F Rahman, said in early December that he had spoken to Volkswagen about opening an electric car factory in Bangladesh. In order to win such a prestigious project, the government would obviously want to be generous, as Rahman emphasized: Volkswagen would get the land for the factory for free.

This interview was originally published in German financial magazine Handelsblatt.