The domestic private sector is the pillar of Bangladesh's economic growth, job generation, and export competitiveness. While the country is set to graduate from the Least Developed Country (LDC) status in 2026 and targets to be an upper-middle-income country in the future, the development of private sector capabilities is a prerequisite for securing sustainable economic growth. Structural problems like inadequate infrastructure, inadequate access to finance, and a shortage of skills are hindering domestic business development. To enhance private sector capacity, Bangladesh must take certain policy actions in three areas.

First, we must improve access to finance and the investment climate. Private businesses in Bangladesh, particularly the small and medium enterprises (SMEs), are severely hindered by restricted access to finance through high interest rates, collateral requirements, and bureaucratic barriers. Financial system reform, investment, and a pro-business environment must prevail.

Broadening the credit facilities of specialised institutions and state banks is the priority. Building stronger credit guarantee schemes will reduce risk for lenders, allowing SMEs to borrow without unreasonable collateral. Creating alternative channels, such as venture capital and crowdfunding, will also facilitate funding for startups and high-growth firms.

Simplification of regulatory clearance, tax payment, and business registration is required to remove bureaucratic bottlenecks and enhance the ease of doing business. Domestic and foreign direct investment can be promoted by strengthening the Bangladesh Investment Development Authority (BIDA). Efficient dispute resolution and contract enforcement mechanisms will enhance investor confidence.

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Developing robust capital markets and attaining financial inclusion are central to long-term growth. Developing a deeper bond market and access to new financial products will support long-term investment. Making stock market listings easier will increase equity financing access. Developing more digital financial services and fintech solutions will ease credit access and online payment for SMEs. Addressing these financial and regulatory challenges is crucial to supporting a robust private sector to deliver sustainable economic growth following LDC graduation.

Second, we need to find ways to enhance industrial productivity and technology adoption. Bangladesh's private sector, which relies strongly on low-cost labour and traditional manufacturing, is not highly competitive in high-value global markets. It is necessary to upgrade, innovate, and digitise industries to build a future-ready sector that is robust. This needs to be done by transitioning to more contemporary and technology-led methods to enhance productivity and competitiveness.

Enhancing local supply chains and industrial clusters through the utilisation of Special Economic Zones (SEZs) and industrial parks will foster integration into international chains, stimulating economic growth and sustainability. The growth of backwards linkages in key sectors like textiles and electronics will reduce dependence on imports and enhance self-sufficiency. Local production of raw materials will be encouraged to improve local value addition and price competitiveness.

Encouraging technological upgrading and digitalisation through tax rebates and subsidies for automation and digital infrastructure is essential. Establishing technology adoption funds will allow SMEs to embrace Industry 4.0 technologies like Artificial Intelligence (AI) and Internet of Things (IoT). Expanding government-supported technology incubators will foster innovation and digital entrepreneurship.

Industry innovation needs public-private collaboration. Academia-business Research and Development collaboration will propel innovation in high-value industries. Product development and technology transfer grants will foster frontier development. Sector-specific technology hubs will expose local businesses to emerging technologies, making them competitive globally. Focus on supply chains, technological upgradation, and collaboration can lead to a powerful, future-ready private sector.

Third, we should focus on developing human capital and entrepreneurial capacity. A flexible and well-trained workforce is central to Bangladesh's private sector growth, where a wide skills gap hinders development. Technical education, vocational training, and entrepreneurial upskilling must improve to equip businesses with the necessary skills and drive innovation.

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Economic development will be encouraged by redirecting vocational training and education through more Technical and Vocational Education and Training (TVET) programmes that are industry need-responsive. Practical skills will be enhanced through the creation of apprenticeship schemes with the help of private firms. Science, technology, engineering, and mathematics (STEM) education and Information and Communication Technology (ICT) literacy will equip the workforce for the Fourth Industrial Revolution.

Fostering entrepreneurship through startup incubation centres that offer mentorship and funding will fuel business innovation. Granting more tax relief and scholarships for startups in high-priority sectors like fintech and renewable energy will attract sustainable development. Women-only lending and training will generate inclusive growth and empower women entrepreneurs.

Strengthening labour market policies that address job creation, workers' rights, and adaptability in employment will address unemployment. Encouraging public-private discussion will ensure policies that account for evolving business and worker needs. Facilitating cross-border labour mobility arrangements will make professional skills workable across the world, creating expertise and driving economic growth. Addressing these domains will cultivate a dynamic, skilled workforce, accelerating private sector growth.

The development of Bangladesh's private sector following graduation from the LDC status hinges on resolving critically constraining factors strategically. Through improving finance access and the investment climate, industrial productivity by adopting technology, and building human capital and entrepreneurship capacity, Bangladesh can unlock its private sector's full potential. Focused policy interventions in the three interlinked areas are critical to building a robust, competitive, and forward-looking private sector and ultimately realising sustainable economic growth as well as upper-middle-income country status.

Dr Selim Raihan is professor in the Department of Economics at the University of Dhaka and executive director of the South Asian Network on Economic Modeling (SANEM). He can be reached at [email protected].

Views expressed in this article are the author's own. 

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