A case for cautious optimism

On Walmart and Amazon's possible entry into Bangladesh

Recent reports in the media have suggested that retail giant Walmart and e-commerce heavyweight Amazon are expected to enter the Bangladeshi market in the next couple of years. From a macroeconomic perspective, the proposed entry of these two firms is a reflection of the strides made in Bangladesh's economy which includes increased digitisation.

Nevertheless, the entry of these powerhouses also poses challenges for firms and local players in the economy. Only time will tell how the entry of Walmart and Amazon will affect the Bangladeshi economy.

For the past two decades, the focus of foreign direct investment (FDI) in Bangladesh has been on the production side of the economy. A particular emphasis on the low-cost structure of the domestic economy has led to Bangladesh concentrating on highly labour-intensive industries. It is certain that the country's rise to lower middle-income status with a GDP growth rate of seven-plus percent has been largely due to an integrated effort of foreign firms investing in Bangladesh's labour force and the willingness of local businesses to provide cheap yet quality products to the international market.

Nevertheless, the inclination of Walmart and Amazon to operate locally in Bangladesh, in addition to the existing operations of other international e-commerce companies such as Alibaba, is interesting. Just look at the numbers: 81.7 million internet users, 137.2 million mobile phone connections and 28 million social media users. All this indicates an increasing preference of people to invest their time, energy and money in the digital economy, especially across the 18-35 age group which consists of a whopping 45 million people. With increasing nominal incomes, the attentiveness of global brands to Bangladesh does not come as a surprise; in fact it can be seen as an acknowledgment of the aggregate consumer base which is likely to ensure high levels of revenue for these firms.

But there remains a broader consideration. A decade or so from now, the consumer base will be even more tech-savvy. Investing in a climate where foreign products are indeed receiving more traction is a logical choice and a lucrative business opportunity for the likes of Walmart and Amazon. Annual private consumption expenditure in Bangladesh is reported to be USD 190.61 billion in 2018, an increase of USD 19.12 billion from 2017. Therefore, in the next few years, the country is forecasted to reach the USD 200 billion mark when it comes to consumption levels (CEIC Data). While final consumption expenditure was reported to be 75 percent of the nominal GDP figure in 2016, the share of consumption as a percentage of the GDP normally tends to be higher. A higher rate of inflation in recent years combined with the crisis in the banking sector and share market may explain the temporary fall in the percentage in this regard.

Yet, global firms may be willing to take the risk of investing in Bangladesh not simply because of the broad-ranging economic achievements of the country, but also due to a desire to invest in the future of Bangladesh, particularly due to its youth population and an environment where demand patterns suggest a shift towards more resourceful, tech-savvy, global products. One can appreciate the fact that Bangladesh is moving towards an economy where consumption behaviour—and not simply the existence of cheap labour on the production side of the economy—will lead to both questions and answers regarding how FDI will be structured in the decades to come. The eagerness of Walmart and Amazon to enter the Bangladeshi market is therefore not surprising.

Beyond the business interests of foreign firms, there remain concerns with regard to their corporate social responsibility and sustainability models. Walmart is associated with providing consumers with relatively affordable products which comes at the cost of exploiting workers in countries like Bangladesh. The association of firms like Walmart and H&M with the Rana Plaza disaster is still fresh in our memories. The recent outcry about the working conditions and treatment of Amazon employees in the United Kingdom begs the question as to whether these firms are falling short of their mandated pledges to the stakeholders in the supply chain. Walmart fought hard, both openly and tacitly, against the Bangladesh government's decision to increase the monthly minimum wage to USD 43 for garment workers. Therefore, people have reason to be wary about the corporate philosophy of such foreign firms. If Walmart and Amazon do enter the Bangladeshi market, we sincerely hope that both the firms address the concerns people have about workers' exploitation.

Another big concern that remains is the effect of foreign competition on local firms. Local producers are demanding for legislation which can ensure the protection of domestic industries. The feeling is that once large firms enter the market, they tend to become a monopoly or oligopoly which makes it difficult for local producers to survive, let alone compete.

In July of this year, the Cabinet headed by Prime Minister Sheikh Hasina approved the Digital Commerce Policy, limiting FDI to a maximum of 49 percent in local e-commerce ventures. But the government has decided to reconsider the limit as some global actors with operating facilities in Bangladesh have voiced their concerns. The government now plans to allow foreign companies to own a hundred percent share in local e-commerce ventures and this of course is a cause for concern for local companies. The government should seriously consider legislating policies which, while ensuring that the lucrativeness of doing business in Bangladesh remains intact for foreign investors, does not come at the cost of the survival of up-and-coming local firms or adhering to labour standards.

In a recent World Bank report, Bangladesh was ranked 177th out of 190 countries in the Ease of Doing Business Ranking. It has fallen in the rankings in recent years with only Afghanistan performing worse among the Saarc nations. It is difficult to ascertain the exact figures, especially when income levels and GDP figures in Bangladesh are increasing. This goes to show the problem of focusing solely on nominal indicators. Local investors and businesses face numerous hurdles when trying to start a new business (getting electricity, paying taxes, etc). If firms like Walmart and Amazon were to enter the Bangladeshi market, the government would have a huge responsibility of ensuring that free and fair business practices prevail across the aisle, and domestic producers are protected. Allowing FDI with the sole aim of boosting nominal economic figures without considering the needs of local businesses and workers will not bode well for the economy in the long run.


Mir Aftabuddin Ahmed is a recent graduate of Economics and International Relations, University of Toronto.

Email: [email protected]


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