For much of the past decade, Bangladesh has been a doyen of the international community, serving as a beacon of rapid development in a volatile region. Broad political stability, a manageable security environment and robust economic growth have underpinned this success. However, this has come at the cost of growing authoritarianism, suppression of political opposition and civil society, and overdependence on exports of readymade garments. Since mid-2022, cracks have started appearing in Prime Minister Sheikh Hasina’s edifice, raising questions about the future of her rule and Bangladesh’s political future. 

In July 2022, the Bangladesh government approached the IMF for a loan to address a balance of payment crisis triggered by increased global commodity prices because of the Russia-Ukraine conflict. Protests erupted across Bangladesh in response to the ruling Awami League (AL) government’s austerity measures, such as reducing fuel imports and deliberate power cuts, along with a hike in fuel prices to boost revenue. The political opposition, led by the Bangladesh Nationalist Party (BNP), has taken the opportunity to revive its fortunes. Since October, it has held massive demonstrations throughout Bangladesh, attracting thousands of people, demanding Hasina’s resignation in favour of a neutral caretaker government to oversee the elections. After more than 14 years in power, Hasina is unlikely to relinquish power before the 2024 polls, but her aura of invincibility has been significantly undermined. 

Human League?

As the BNP presses ahead with demonstrations in the months ahead, Hasina’s response to the protests will shape the run up to the elections. Hasina has shown no sign of adapting her playbook to the evolving situation. Familiar tactics – ignoring protestor demands, crackdowns on opposition leaders, increased surveillance and censorship, and counter-protests by the AL that often result in clashes with the BNP – are likely to persist. Such a modus operandi increases concerns about electoral transparency and portends a violent year ahead. 

What comes next is less clear. Allegations of rigged elections would trigger large-scale political violence, increasing the risk of international sanctions. On the other hand, a free and fair poll could bring about a new government for the first time in 15 years. While transparent elections seem unlikely, a combination of sustained protests in the face of the government’s inability to stem the economic problems and sufficient international pressure could force Hasina’s hand. 

Hasina’s time in office has been an exercise in power concentration and the emasculation of Bangladesh’s institutions. This presence has also shaped the business environment. Hasina’s exit from political centre stage would prove to be a tectonic change that could undo the system that Hasina has carefully built since 2009 and has been at the root of Bangladesh’s success in recent years. If her opponents gain power in 2024, they will find a bureaucracy that has effectively become the AL’s administrative arm and conglomerates that have gained prominence because of their proximity to the ruling dispensation. A change of government would mean a reset of this existing system triggering potential political exposure, and contract and business disruption risks for companies operating in the country. 

Fragile peace

The benign security environment in Bangladesh also has much to do with Hasina’s strong leadership. There has been a significant decline in terrorist activity in Bangladesh since the July 2016 attack on a bakery in Dhaka’s diplomatic district, which killed 17 foreigners. Strong physical surveillance, widespread arrests and the killing of terrorists since have significantly weakened militant networks in the country. Hasina has dealt with terrorism in a firm and decisive manner, a far cry from the efforts of the previous BNP-Jama’at-e-Islami coalition government in the early 2000s. However, regular arrests of suspected militants indicate that extremist groups remain active in the country, perhaps biding their time and focusing on propaganda and recruitment. Despite the government’s best efforts, online radicalisation is likely to further drive recruitment. As such, the threat of small-scale attacks by self-radicalised youths or sleeper cells cannot be ruled out, despite extremist groups lacking the current capacity to stage large-scale attacks. 

An unravelling of political stability at the top or post-poll political chaos could change this situation. A resurgence of terrorism post-2024 would increase the risk of attacks against government targets, strategic assets, places of worship, restaurants, shopping malls and other public places. While businesses or commercial complexes are unlikely to be specifically targeted, incidental or indirect threats will persist. 

Wardrobe malfunction

Amid this political upheaval, there is no quick fix for Bangladesh’s economic predicament. The IMF loan, approved in January 2023, is no miracle bullet for Bangladesh’s immediate economic situation. The country’s dwindling foreign exchange reserves will remain stressed amid a difficult external environment. Exports of readymade garments, which account for 85% of Bangladesh’s total exports and 10% of its GDP, are likely to remain erratic for much of 2023 as inflation erodes disposable incomes in its biggest export destinations, the US and Europe. 

The government may be forced to pursue unpopular measures such as withdrawing subsidies for fuel and electricity for individual households, further increasing the risk of civil unrest and consequently operational disruption for businesses. Continuous increases in retail gas prices for commercial users will drive up operational costs for businesses in Bangladesh. While Dhaka may slowly be considering resuming oil imports from the global spot market, its planned future purchases are unlikely to meet energy demands, particularly during the peak summer months, as domestic production remains insufficient and the power transmission and distribution infrastructure remains weak. As such, regular power outages will continue to disrupt business activities. Finally, the government is likely to enforce tax collection more strictly to improve revenue – an IMF requirement – thereby increasing scrutiny on companies.

The business environment is likely to remain challenging irrespective of the party in power beyond 2024. Amid such difficulties lie some long-term opportunities. The COVID-19 pandemic and the balance of payment crisis has driven home the urgency to diversify the economy. Both an AL- and BNP-led government will seek greater foreign investment in sectors like infrastructure, renewable energy, pharmaceuticals, agriculture, leather, auto parts and ICT products. Such opportunities notwithstanding, the government’s efforts in easing regulations and improving the business environment – for which it currently has a poor record – along with the prevailing political and security environment, will shape the risk outlook for investors.

Hasina the light...

Irrespective of what happens in January 2024, already aged 75, with rumours of ill health, Hasina’s exit from the political stage is more a question of when, rather than if. The contours of a post-Hasina political landscape are unclear. The BNP already appears to have undergone a generational leadership transition with Tarique Rahman effectively taking over from his mother, former prime minister Khaleda Zia. A Rahman-led BNP could be more aligned with western interests, encouraging foreign investment and taking a stance against terrorism. However, it remains to be seen how different a BNP 2.0 government would be from its previous avatar.  On the other hand, Hasina does not appear to have a clear succession plan. Her relatives, widely seen as heir apparent, lack popular support within the party, among the masses and with critical institutions, such as the security establishment. While having relatives at the helm may offer a degree of policy continuity, their lack of decisiveness and comparatively weak leadership will pose significant political instability risks that in turn will have a significant impact on the business environment. 

Companies should start preparing for a post-Hasina scenario in Bangladesh. Greater investment in engaging with the second rung of the AL leadership should be a must, including communication with stakeholders outside Hasina’s inner coterie. Similarly, businesses should open channels of communication with the BNP leadership. However, companies must undertake such initiatives discreetly, given the risk of backlash in the present political environment. Closer relations with BNP leaders could potentially help mitigate political exposure risks for companies partnering with local conglomerates that have close relations with the AL government. Nonetheless, new investment in Bangladesh should involve a careful pre-assessment of all integrity risks and political connections specific to prospective partners that could undermine their operations in the country. 

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