Economics

Investing In One Of The World’s Most Chaotic – And Fastest-Growing – Economies

I travel all over the world in search of investment opportunities for my International Capitalist subscribers.

So last month, I went to Bangladesh.

[REITS]

Even though it’s one of the most populous countries in the world with an economy that’s growing faster than almost any other, Bangladesh is about as off-the-radar as you can get in the investment world. Its stock market isn’t categorised as a frontier market – and it isn’t even close.

To me, that no one’s talking about Bangladesh makes it it all the more fascinating and bristling with potential.

Why Bangladesh should be on your investment radar

  • It’s growing – Over the past 10 years, Bangladesh’s economy has grown at an average rate of 6 percent per year. And through 2050, Bangladesh is expected to be one of the world’s fastest-growing economies, with an annual growth rate per capita of more than 4 percent, according to a recent report by professional services firm PricewaterhouseCoopers.

World's Most Chaotic - And Fastest-Growing - Economies

That might not sound like much… but consider, the U.S., France and U.K. are all expected to grow less than 2 percent a year during this period, as this graph shows.

This growth will see Bangladesh rise up the world rankings… from the 31st -largest economy in the world now to the 23rd-largest in 2050.

  • It’s a demographic dream. Bangladesh is the size of the U.S. state of Iowa, or the country of Nepal. But with 160 million people, Bangladesh has 52.6 times more people than Iowa and 5.7 times more people than Nepal. It’s one of the most densely populated countries in the world (aside from city-states like Singapore).
    All those people mean that a normal day downtown looks like a cross between crowds outside a big stadium after the end of a concert or a cricket match – and a full-blown riot.
    But what makes for a crowded (and sometimes claustrophobic) sidewalk experience, though, is explosively positive from an investment perspective. Bangladesh has one of the world’s best demographic profiles, with an average age of 25.6 (compared to 37.8 in the U.S. and 35 in China). The country’s working-age population will peak in 2030.
  • Bangladesh is a haven for low-cost production. Bangladesh is a world leader (number two in total exports) in making mostly low-end clothing. Those cheap t-shirts at Wal-Mart and H&M? They’re made in Bangladesh – where an entry-level garment worker (they’re mostly women) is lucky to make US$100/month. This is an enormous growth industry, as production in China and other markets looks for the next low-cost destination.
    But things aren’t all sunny in Bangladesh: It rains, and floods… all the time. Most of Bangladesh is on a delta – that is, a deposit of clay, silt and sand formed at the mouth of a river. The average elevation of the country is around 33 feet above sea level (that’s even lower than Singapore – which after all is a small island). A conversation about the main events in the country inevitably includes frequent reference to the cyclones and resulting flooding that wipes out tens, if not hundreds of thousands of people and shoves millions more further into a wet, homeless poverty.
    Besides inclement weather, Bangladesh has a host of man-made problems as well.

Politics create uncertainty

For starters, there’s politics. Tensions between Bangladesh’s two main political parties (the Bangladesh National Party and the Awami League) run high.

During the last election in 2014, the Bangladesh National Party boycotted the election after the governing Awami League refused to put a nonpartisan caretaker in place to oversee voting. As a result, about half of those running for seats in parliament were unopposed.

Preceding the election, the government also put the Bangladesh National Party leader under house arrest, and arrested a number of other party members. There was also violence surrounding the election, with more than 20 people killed.

Today, Sheikh Hasina Wazed remains prime minister following the controversial elections in 2014. The next elections will be held in late 2018. Many governments increase spending the year before an election, as a way of winning over voters – and Bangladesh is no different, so a lot of the people I spoke with are expecting a bump in the economy (and the stock market) with the approach of elections.

But political instability is just the tip of the iceberg of problems in Bangladesh.

Corruption, censorship and human rights violations drag on the economy

Bangladesh ranks 145 out of 176 on Transparency International’s Corruption Perceptions Index. And Reporters without Borders ranks Bangladesh 144 out of 180 for press freedom.

The country has also been accused of human rights violations – with almost a hundred people killed by law enforcement agencies this year alone, according to one report.

Corruption and political turmoil are just some of the reasons why Bangladesh is one of the poorest countries in Asia, on a per capita basis. It has a GDP of just US$220 billion – about the same as the U.S. state of Kansas.

And walking around downtown Dhaka, you can see the signs of poverty… crumbling sidewalks, beggars, dilapidated buildings, filth and garbage everywhere. And in the countryside, small-scale farming means life isn’t much easier… people tending their tiny rice paddy plots or their two cows weren’t doing much better than the city folk.

Meanwhile, economic growth is held back because – for most people – it’s difficult to get business done.

Bangladesh is ranked 176 out of 190 countries on the World Bank’s Ease of Doing Business survey (a high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm). That’s better than Afghanistan (and Somalia, which is dead last). But it’s worse than Syria (a virtual war zone) and Sudan.

And Dhaka is one of the least liveable cities in the world, according to the Economist. It’s only a bit better than Lagos, in Nigeria, and Damascus, the capital of Syria.

One of the most obvious manifestations of – and reasons for – that low ranking is that Dhaka has absolutely paralytic traffic. According to the World Bank, the average speed of traffic in the city is 7 km/hour (around 4 miles/hour). Three-wheeled bicycles, trishaws, scooters and buses trying to navigate streets built to accommodate a small fraction of the current traffic load cause a lot of that paralysis. What’s more, most drivers use their horns far more than they use their turn signals… so the country’s streets are an endless cacophony of horns. (If you ride a bus outside of the city, be sure to sit in the back… and/or bring earplugs. The endless honking by the driver of a bus I spent a few hours on drove me crazy.)

A land of opportunity

In many ways, Bangladesh is pretty dire. Between the traffic and crammed, crumbling (or non-existent) sidewalks, getting anywhere is a difficult, dangerous and sweaty endeavour – it’s a hot country. And Dhaka is not a pretty city, parts of it are downright filthy. People who live there told me that there’s not a whole lot to do, once you’ve been there a while. A lot of cities I visit feel like a place that I’d like to live – but, to be honest, Dhaka isn’t on that list.

However… that’s part of why it has such amazing potential. If Bangladesh had sparkling beaches, amazing museums, and towering mountains, it would be overrun with tourists and investors. You’d read about it in Forbes. CNBC would have talking heads blathering on about Bangladesh.

But it doesn’t. And that makes the profit potential all the better.

There’s no McDonalds or Starbucks in Bangladesh. There are no global investment banks on the ground. Foreigners own just around 5 percent of the stock market, one asset manager told me.

And as for corruption… none of the people I spoke with in Bangladesh – entrepreneurs, bankers, senior managers at large conglomerates – even mentioned corruption. I’ve found that in many countries where it’s an issue, people complain about corruption, blaming venal politicians and policemen for their problems. But in Bangladesh, it seems like people are better at factoring it into their plans – and just getting on with life. Meanwhile, the perception that corruption is crushing business also helps keep people away. “Corruption? It’s not stopping anything from growing,” a senior manager at one of the country’s big conglomerates told me.

So while it’s true that Bangladesh still has a lot of challenges ahead, it’s also in the early stages of a multi-decade growth trajectory. And early investors into this market could make a lot of money. So if Bangladesh isn’t on your radar yet, it might be time to put it there.

Good investing,

Kim Iskyan

Publisher, Stansberry Churchouse Research