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Bangladesh’s investment potential is increasing as Japanese companies leave China

Japan is triggering to migrate its companies outside China to facilitate production, and they added Bangladesh to its list of preferred destinations. This momentous decision will is help to boost the South Asian country’s economy by relocating factories.

Figure: Japanese economic zone under construction in Bangladesh.

The Japanese ambassador Naoki Ito stated that “When the COVID-19 epidemic began in China, then Japanese companies needed to diversify their supply chains, not just relying on China,” further adding that it will provide a great opportunity for a country like Bangladesh.

The island nation’s nudge to relocate companies comes at a time when a Special Economic Zone is in the making in Bangladesh to lure Japanese firms’ production facilities. The industrial zone sprawling on 1,000 acres in the Araihazar sub-district, 32 kilometers away (about 20 miles) from the nation’s capital Dhaka, is expected to bring in $20 billion in Japanese investments, according to Bangladesh Economic Zones Authority.

Japanese manufacturers have already been seeking lower labor costs and supply-chain diversification by moving some output out of China for years as wages rose and infrastructure in countries like Vietnam and Bangladesh improved. Over the last 10 years, the number of Japanese companies operating in Bangladesh has tripled, according to Ito.

For years, Japanese manufacturers have been looking at low labor costs and supply-chain diversification by eliminating some output from China with wage rate and infrastructural development countries like Vietnam and Bangladesh. Besides that Japan has allocated $350 million in special loans to develop the $1 billion industrial zone for making it the largest such assistance for an SEZ in Asia.

Japanese carmakers such as Suzuki Motor Corporation and Mitsubishi Corporation have decided to build The Araihazar industrial park by 2022. Naoki Ito added that Japan Tobacco Inc. and Honda Motor Co are among the largest Japanese investors in South Asia so far and are expected to work to establish their new economic zone in Bangladesh.

Bangladesh occupies a geographically strategic location linking South Asia and Southeast Asia. One of the world’s most populous countries, Bangladesh has 160 million people residing in a land area that’s just about 40% of Japan.

The South Asian economy, which grew an estimated 5.2% in the year ended June, sees a 7.4% expansion in the current financial year. While that’s slower than the 8.2% pace it previously forecast, it still puts the nation ahead of regional peers on the growth metric.

The pace of restoration is faster in Bangladesh, analyzed to the neighboring countries and the country nestled between India and the Bay of Bengal sea is a destination with “good and strong” prospects for Japanese companies.

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