May 15, 2013
The only English word my taxi driver knew was “shit”. And perhaps, given the state of his vehicle and road conditions, it was the most appropriate.
I lost count of the number of pedestrians we nearly mowed down on the way from the airport; it was difficult to see anyhow– the shattered glass from the bullet hole in his windshield obscured my view.
This was no typical third world taxi ride. Because… there are developing countries. And there are really poor countries. And then there’s Bangladesh– a country so destitute it makes sub-Saharan Africa look wealthy by comparison.
Bangladesh is so poor that the World Trade Organization has awarded it “Least Developed Country” status. It’s a dubious honor that’s supposed to impart 100% duty free, quota-free access to ‘rich’ countries like the United States.
But even despite such incentives, the manufacturing sector is running far below its potential; the nearly constant social unrest and political stunts tend to scare away foreign investors.
I saw this first hand as I spent the day exploring the city and meeting with locals– not a single westerner to be seen outside of my hotel lobby.
Spending time with bankers, brokers, and lawyers today, it’s clear one of the major reasons why the country is so poor is because there is an utter lack of access to capital.
Capital is the lifeblood of an economy… and of business. Without it, neither can function. But Bangladesh’s completely dysfunctional, government-dominated banking sector has nearly eliminated access to capital.
Politicians make the worst bankers– they wouldn’t know a good deal if it hit them in the head. Just in the last quarter, in fact, default rates at the state-owned banks soared 40%.
Meanwhile, small businesses and micro-enterprises are stuck without access to capital.
I saw the effects of this while walking through a market today– groups of metal workers were hammering away forging tools by hand, just like medieval blacksmiths.
They use technology from the Dark Ages because anything that’s remotely capital intensive just isn’t possible with the current financial system here.
This restrains productivity, production, growth, development… everything. And what you end up with is a GDP per capita that’s lower than even Myanmar’s– a country that has suffered from economic sanctions for more than a decade.
The bright spot in Bangladesh is that private industry is starting to fix this.
Private banks, for example, constitute the fastest growing portion of the financial sector. Their product offerings are superior, customer service better, and the banks are better managed and more highly capitalized.
You may also be aware that Bangladesh is the epicenter of microfinance; just down the road from me is the Grameen Bank headquarters, the microfinance bank founded by Muhammad Yunnis that revolutionized the industry.
These private-sector players are making a big dent in the government finance monopoly. And I expect that the flow of business credit will improve dramatically in the coming years.
Bigger picture, this is a huge market. Bangladesh crams 160 million people into an area smaller than the state of Iowa. It’s dirt cheap. There are trade incentives. There are natural resources. There’s a lot of turmoil and chaos at the moment. And best of all, it’s practically off the radar.
These are all great ingredients for an interesting long-term speculation. I’ll report back on what I find.