A Deep-dive into the Current Export Potential of Bangladesh's Light Engineering Sector
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Bangladesh stands at a pivotal juncture in the current global economic landscape. The evolution of global markets coupled with domestic industrial acceleration brings the light engineering (LE) sector particularly into the spotlight. Considering the evolving global markets and the country's accelerating industrial development, it is poised to become Bangladesh's next major export hub.
The Bangladeshi LE sector comprises over 40,000 enterprises and employs 1 million semi-skilled, skilled, and technically educated individuals. Industry insiders contend that this sector contributes 2-3 percent to the GDP as of 2023.
Key products include industrial machinery and spare parts for industries such as textiles, jute, paper, sugar, and cement; agricultural equipment like power tillers and irrigation pumps; construction machinery; electrical goods and components; bicycles and their parts; automotive components; household appliances; medical equipment; printing and packaging machinery; and precision tools like molds and dies.
Source: EPB
According to the Export Promotion Bureau (EPB) of Bangladesh, engineering equipment takes the majority share (241.56 million US$ in 2021-22) in terms of its contribution to exports from the LE sector, followed by bicycles (167.95 million US$ in 2021-22) and iron steel (154.68 million US$ in 2021-22).
Additionally, copper wire, stainless steel-ware, and electrical products have their fair share of contribution to the exports. The sector has grown with a CAGR of 22.27% from 2017 to 2022. Multiple factors have contributed to the exponential growth of this sector:
Rising per-capita income: According to the World Bank, GDP per capita was $958 in 2013 (current US$), which stood at $2,251 in 2023. This significant rise in per-capita income has led to increased consumer spending. The rising domestic demand for manufactured goods, spare parts, and tools presents an opportunity for LE firms to expand their production capacity, which will enable them to meet both current domestic and future international demand.
Domestic industrialization: The manufacturing sector in Bangladesh has demonstrated resilience despite facing challenges, such as a decline of 25.70% in May 2020 due to the pandemic and a subsequent increase of 78.37% in April 2021. Data from the Bangladesh Bureau of Statistics reveals that the industry has maintained an average growth rate of 10.35% between 2013 and 2024. This growth, coupled with the expanding manufacturing sector, presents an opportunity for Light Engineering (LE) firms to increase their capacity to address the rising demand for manufactured goods, spare parts, and tools.
Infrastructure development: Country-wide infrastructure development, such as electrification and increased connectivity, has allowed small workshops and engineering firms in rural and semi-urban areas to reduce reliance on manual labor by shifting to machinery. For instance, equipment such as sprayers, weeding machines, tillers, foraging and threshing machines, water pumps, and tube wells are being used. This supplements the expansion of SMEs and local manufacturing in those regions and paves the way for the LE sector’s ancillary industries that supply the necessary parts for the related industries.
In tandem with the abovementioned factors, Bangladesh’s LE sector boasts unique growth opportunities. Bicycles and parts hold substantial export potential, since they account for one-fourth of the sector’s total exports (131 million US$) in 2020-21.
Given the increasing global demand for eco-friendly transportation and the European Union's emphasis on sustainable mobility solutions, the Bangladeshi bicycle export scenario paints an optimistic future. Electrical equipment such as lead accumulators, refrigerators, compressors, transistors, diodes, and optical lenses also hold export potential to the United States, Germany, the United Kingdom, and Japan.
The burgeoning electric three-wheeler market, valued at approximately USD 871 million in 2022, is expanding rapidly, driven by the widespread adoption of electric three-wheelers. This growth presents opportunities for exporting batteries and related components such as parts of electrical accumulators as they are integral to manufacturing electric three-wheelers.
Despite the potential, tangible expansion of this sector cannot happen without policy interventions. Hence, the Government of Bangladesh has taken certain measures to facilitate the growth of the LE sector and streamline the utilization of the sector’s potential, such as:
The “Light Engineering Industry Development Policy 2022” was introduced to drive sustained expansion in the sector by addressing key production challenges. Recognizing the need to secure raw materials and reduce production costs, the policy establishes raw material banks utilizing shipbreaking waste and offers tax incentives effective until 2025 to encourage investment and operational efficiency.
To bolster SME growth and attract foreign direct investment, the government has committed to developing six dedicated industrial parks. While the policy specifically names parks in Dhaka and Bogura, announcements indicate that the remaining parks are expected to be located in other strategic industrial regions such as Chittagong, Narayanganj, Gazipur, and Cumilla. This initiative meets the need for a structured ecosystem that clusters manufacturing activities, thereby enhancing productivity and global competitiveness.
In response to persistent workforce skill gaps, the government is prioritizing technical and vocational training (TVET) programs. Drawing inspiration from Vietnam’s education-driven industrialization model, these programs are designed to equip workers with the technical skills required for modern manufacturing, thereby increasing the overall productivity of the LE sector and aligning workforce capabilities with industry demands.
The government has implemented a series of financial incentives to stimulate entrepreneurship further and enhance export competitiveness. These include a 10-year tax holiday for manufacturers, subsidized loans, export incentives such as duty-free access to 52 countries under the Generalized System of Preferences (GSP), and a 15% cash incentive on exports. These measures aim to lower financial barriers, promote domestic production, and position Bangladesh as a formidable global light engineering market player.
Strategic interventions are quintessential for fully unlocking the latent potential of Bangladesh’s LE sector. Enhancing technology adoption through joint ventures with foreign firms will modernize machinery and production processes, leading to increased competitiveness.
Tax policy reforms, particularly aligning raw material tariffs with finished goods, can lower production costs and incentivize local manufacturing. Strengthening export marketing by leveraging diplomatic trade agreements—such as the UK’s Developing Countries Trading Scheme—will open doors to the European market. Formalizing micro-enterprises and integrating them into structured supply chains will enhance SME efficiency, ensuring a globally competitive LE sector.
