Japanese firms warming up to Bangladesh

Japanese companies are increasingly looking to Bangladesh, attracted by its large consumer base, growing middle class and potential for investment.

Surveys by the Japan External Trade Organisation (JETRO) show that consumer goods are among the main areas of interest of the firms. 

Over the years, the organisation has also identified Bangladesh as one of South Asia’s most promising destinations for business, citing its large population and rising purchasing power.

Japan has spent years planning to expand investment and relocate more industries to Bangladesh, particularly in garments and textiles, under its Big B plan, or Bay of Bengal Industrial Growth Belt. 

The plan envisages an industrial corridor linking Dhaka, Chattogram and Cox’s Bazar, modelled on the industrial hubs of Tokyo and Osaka that developed between the 1960s and 1980s and helped drive industrial growth of the island nation.

A few years ago, more than 85 percent of the nearly 338 Japanese companies running businesses in Bangladesh told JETRO they wanted a free trade agreement between the two countries to boost bilateral trade and investment. 

More recently, nearly 72 percent said they planned to expand in Bangladesh within a year or two, viewing the country as a promising market.

In February this year, Bangladesh and Japan signed an Economic Partnership Agreement (EPA) to strengthen trade and investment ties.

Kazuiki Kataoka, country representative of JETRO Bangladesh and the current president of the Japan-Bangladesh Chamber of Commerce and Industry (JBCCI), said many Japanese companies are relocating from China to Bangladesh, drawn mainly by lower labour costs and the size of the domestic market.

The companies are investing mainly in readymade garments (RMG) and consumer goods, he said, as a large and growing middle-income population drives demand. 

“Mitsubishi and Toyota, for example, have already approached the government for help with producing cars in Bangladesh. Japanese firms are also interested in fast-moving consumer goods and food processing,” he added.

According to Kazuiki, the domestic market is the main attraction. 

He said that Japan has a long-term plan for Bangladesh, which explains why the close relationship between the two countries is being emphasised during Prime Minister Tarique Rahman’s visit. 

“Japan is now focused on Bangladesh as a market in its own right, rather than using the country as a gateway to other markets,” Kazuiki added.

Tareq Rafi Bhuiyan (Jun), the immediate past president of JBCCI, said Big B, or the Free and Open Indo-Pacific (FOIP), was adopted mainly with Bangladesh’s market in mind. Regional issues are now also being discussed to some extent under the FOIP framework.

He said that several major projects were also planned with the domestic market in mind, including the third terminal at Hazrat Shahjalal International Airport in Dhaka, the deep-sea port and power plants at Matarbari, and the Japanese economic zone at Araihazar.

Matarbari also has strategic importance, as the port is intended to serve as a hub linking the Indian subcontinent with ASEAN and East Asian countries, including Japan.

In July, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) launched a dedicated Japan desk to tap the market’s potential. 

BGMEA President Mahmud Hasan Khan said Bangladesh’s apparel exports to Japan have already exceeded $1 billion, but there is considerable scope to increase them further. 

He stressed the need for single-stage rules of origin under the agreement, which he said would make exports simpler and cheaper.

Currently, about 98 percent of Bangladeshi goods enter Japan duty-free under the least developed country (LDC) category. Japan is the only Asian country where Bangladesh’s exports have exceeded $1 billion over the past decade. 

Annual exports to Japan have topped $1 billion since the fiscal year 2015-16, while two-way trade exceeded $3 billion in FY18, according to the Export Promotion Bureau (EPB).

Bangladesh imports iron and steel, vehicles and accessories, ships, machinery, mineral fuels, medical and surgical instruments, plastics and electrical machinery from Japan, according to Bangladesh Bank data.

Industry people say the “China plus one” strategy adopted by industrialised countries has made the South Asia region a natural destination for investment. They point to South Asia’s economy of nearly $5 trillion, a population of almost 2 billion, a largely young workforce and a strategic location.

Business leaders say more than 350 Japanese companies now operate in Bangladesh across trading, manufacturing and infrastructure. 

Japanese manufacturers, from motorcycle makers to clothing firms, create jobs and help upgrade technology. Small and medium-sized Japanese enterprises are also exploring opportunities in Bangladesh’s information technology, logistics and other service sectors.

Business leaders in both countries expect more Japanese companies to enter Bangladesh once the EPA comes into force.