On 5 August, Sheikh Hasina resigned as Bangladesh’s prime minister and left the country. This abrupt departure marked a tectonic shift in the country’s political landscape and followed a wave of anti-government protests that had left Hasina’s position untenable.
An interim government led by Muhammad Yunus was put in place on 8 August 2024. The interim government will oversee a difficult economic and political transition before elections can be held. Consulting with political parties and setting up specific commissions, Yunus has started the process of political and institutional reform needed before polls can be held.
No clear timeline or roadmap has been unveiled, and building a consensus around the actual process will remain tricky given the number of stakeholders involved. This situation has the potential to increase external pressure on the government. Considering the task at hand, Control Risks estimates that fresh polls will likely not be held for at least a year.
Businesses in Bangladesh are set for a period of regulatory and operational uncertainty. There is no guarantee that measures put in place by the interim government will survive when a new government comes to power.
Back to the economy
The Yunus government’s short-term priorities will be to ensure law and order and to maintain uninterrupted business activity. While the security landscape has improved under the interim government since 5 August, several triggers for unrest persist.
Other priorities have begun to emerge as well: tackling inflation, improving tax compliance and sorting out the country’s balance of payment crisis.
The interim government has sought emergency budgetary assistance from the IMF, World Bank and other multilateral credit agencies. While a good buffer, these funds are unlikely to be sufficient to overcome the challenges created by the lack of foreign exchange liquidity over the next few months. Dwindling foreign exchange reserves continue to delay the payment of exports and the ability of foreign companies to repatriate their earnings. Businesses should remain cautious on this front.
Tackling corruption is also a significant priority for the interim government, which is manifesting in the review of contracts and projects commissioned by Hasina’s administration and investigations of business conglomerates perceived to be close to the previous regime. These early regulatory actions indicate the kinds of potential integrity, contract and political exposure risks that could impact foreign companies with local partners or suppliers in Bangladesh.
The interim government will be mindful that too many disruptions to major domestic companies or existing contracts could have a ripple effect on the economy, but a government in the future –particularly one led by the Bangladesh Nationalist Party – may not operate under similar constraints. Businesses should see this kind of regulatory risk as a long-term challenge in Bangladesh.
By appointing former Bangladesh Bank Governor Salehuddin Ahmed as financial advisor to the government, and a former International Monetary Fund (IMF) official, Ahsan H Mansur, as head of the Bangladesh Bank, Yunus now has competent people to help steer the economy. The government has also commissioned a whitepaper to understand the real extent of the country’s economic challenges.
All these measures are necessary to build credibility, particularly with the IMF, which expects to see improvements like these if it is to continue its financial support for Bangladesh.
Mitigation measures
Despite the recent political upheaval, Bangladesh remains a dynamic market. Here is a snapshot of some of the work we are doing with investors and multinational corporations as they navigate uncertainty in the country.
Stakeholder mapping
There will be a significant shakeup in government ministries and key institutions in Bangladesh. This will require a fresh assessment of the key stakeholders and their disposition. Even as the dust settles on this process under the interim government, it will start back up again after the elections.
Whether those in power will take a benign or vengeful approach to businesses close to the Awami League depends on who comes to power and how they view their path to continued political success. Foreign companies, including those with vast experience in Bangladesh, will need to be vigilant in re-examining their stakeholder engagement strategy.
Partner, investee, senior management and supply chain due diligence
Whether considering an operating subsidiary, a joint venture partner, a portfolio company or a supply chain partner in Bangladesh, an intelligence-driven background investigation has long been a pillar of due diligence for multinationals. It is essential for multinationals to understand the political exposure of their partners under a range of scenarios as the new government takes shape and new stakeholders come to power.
Policy agenda: keeping track of priorities
The interim government will prioritise economic diversification, an initiative for which foreign investment will be critical. But overnight change is unlikely. The readymade garment sector will remain the economy’s central pillar – with all its associated operational and reputational challenges in tow.
Infrastructure development will continue to be a government priority, as well. And there will be a continued dependence on natural gas alongside a push for renewable energy.
The real challenge
As the euphoria of “Independence 2.0” subsides, the real challenge for the interim government begins. Its success will depend on its cohesiveness and effectiveness, the ability of major political parties and student activists to give the interim government time, the way the security and economic landscape unfolds, and military’s appetite for playing a more overt political role.
Businesses should pay close attention. Those with informed strategies for mitigating risks in Bangladesh, both now and after the elections, will be in the best position to seize opportunities in the country going forward.