To maintain its status as one of Asia’s most promising emerging markets, Bangladesh is pursuing an ambitious infrastructure overhaul — and its powerful neighbors are champing at the bit to seize the new investment opportunities at hand. In recent years, Bangladesh has experienced explosive economic growth, thanks in large part to its booming garment industry. But the country’s outdated infrastructure has struggled to keep up with demand, leading to long delays and higher shipping costs at the country’s main seaport of Chittagong. With Bangladesh’s international trade expected to only grow in the coming years, so too will the need to build alternative ports that can lessen the load on Chittagong. And India, China and Japan have all shown they’re more than willing to help, forcing Dhaka to delicately navigate around its suitors’ vying strategic interests to secure the capital needed to boost trade revenue and take its economy to the next level.

 The Big Picture

Home to 165 million people, Bangladesh is one of Asia’s fastest-growing emerging markets. Its location on the Bay of Bengal, a key node for maritime traffic on the Indian Ocean, has drawn interest from foreign investors seeking to upgrade the country’s ports infrastructure. A major constraint on the success of any new ports, however, will be a lack of roads, railways and inland waterways connecting them to the country’s industrial center in Dhaka.

Growing Pains for Bangladesh Ports

Bangladesh’s economy is growing rapidly. At 7.9 percent, the country’s gross domestic product (GDP) growth rate in 2019 was among the fastest in Asia, placing it ahead of India, Pakistan and China. Over the past decade, Bangladesh’s GDP has more than doubled to $250 billion, with merchandise trade growing from $39 billion to $102 billion. The country is home to the world’s second-largest, ready-made garment industry, which has been a key driver of its economic engine. Capitalizing on low-cost labor, the sector produces apparel for major clothing brands and is a keystone in the government’s effort to shift the economy’s reliance from agriculture to manufacturing. The need to diversify beyond the garment industry, however, is a growing concern, as it relies heavily on imported raw material (cotton, for example, Bangladesh’s top import).

Yet even as the growth of Bangladesh’s trade is a boon, the resulting higher volumes of imports and exports are straining its ports infrastructure on the Bay of Bengal. Ninety-four percent of Bangladesh’s trade is processed through Chittagong, the country’s main seaport. Chittagong was initially designed to process 1.7 million 20-foot ton equivalent containers (TEUs) per year; it handled 2.7 million TEUs in 2018. Its storage capacity of 50,000 TEUs is insufficient and leads to overcrowding in the port yard. The port’s maximum draft of 9.2 meters (30 feet) also means larger ships requiring deep water — defined as 15 meters — must offload cargo to smaller vessels for berthing, adding to the shipping time and cost. And poor connectivity between the country’s other major seaport, Mongla, and the Bangladesh capital and industrial hub of Dhaka creates an overreliance on Chittagong. The result is an average waiting time of eight days before vessels can berth at the port, which raises shipping costs by an estimated $15,000 per day. By curtailing efficiency, the congestion at Chittagong also raises the risk of canceled orders. And with the volumes expected to double to 5.6 million TEUs by 2036, failing to resolve these issues could prevent the country’s expected economic growth by only making matters worse.

Courting Regional Rivals

As a result of these infrastructure and trade challenges, the World Economic Forum ranked Bangladesh 104th out of 140 countries in its 2019 Global Competitive Report. This low ranking will continue to hinder Dhaka’s ability to advance Bangladesh’s economy beyond its lower-middle-income status and substantially improve the standard of living. As a result, Prime Minister Sheikh Hasina has avidly sought to upgrade her country’s ports infrastructure in recent years. The state-owned Chittagong Port Authority (CPA) is overseeing the addition of four terminals by 2025. This includes the construction of the Patenga Container Terminal and the Bay Container Terminal, as well as working on building a new container yard designed to hold 550,000 TEUs to increase storage capacity. The CPA has also invited bids from global ports operators for the Laldia Multipurpose Terminal, a $500 million project that will accommodate both container and bulk cargo vessels.

But while Bangladesh has experienced significant economic growth, it remains a developing economy. And as such, it lacks the capital to fund infrastructure projects on its own, which has compelled Dhaka to court foreign investment. Under a project funded by the Asian Development Bank, the government has already modernized the Chittagong Port’s information system in a bid to increase efficiency. The untapped potential of Bangladesh’s fast-growing market has also piqued the interest of nearby China, India and Japan. On a global scale, infrastructure traditionally yields low returns with long time horizons. But that hasn’t kept these three regional powers from seeking out the lucrative investment opportunities opening up as a result of Bangladesh’s infrastructure push.

 

For Dhaka, however, international involvement in its ports will challenge its ability to remain aloof from India and China’s intensifying geopolitical rivalry. In recent years, Bangladesh has joined Beijing’s Belt and Road Initiative (BRI) while still upholding strong relations with neighboring New Delhi, which remains its most important trade partner. In 2016, for example, the Bangladesh government ultimately decided against granting China the contract to develop what would have been the country’s first deepwater port in Sonadia. While Dhaka never explicitly explained its reasoning, the decision seemingly aligned with India’s concerns over Chinese encirclement, with Beijing already backing ports in neighboring Pakistan, Sri Lanka and Myanmar. But also unwilling to shut the door on Chinese capital, Bangladesh still went on to sign $24 billion worth of BRI-related deals during President Xi Jinping’s visit to the country later that same year.

Today, China is exploring a deepwater port in Payra. Meanwhile, Japan — which shares India’s concerns over Chinese expansion and is already one of Dhaka’s major development partners — is now slated to build the country’s first oceanside deepwater port at Matarbari. The Japan International Cooperation Agency has agreed to fund over 70 percent of the $2.2 billion port project, which would allow larger ships to berth at Matarbari. The proposed port has the potential to lessen the current burden on Chittagong by becoming a transit hub for other countries such as Nepal and Bhutan. But for this to be successful, Bangladesh will also need to ramp up inland infrastructure connecting the country’s industrial center in Dhaka to the new port.

For a rapidly expanding market like Bangladesh, attracting the funds to develop its ports is vital to modernizing its infrastructure and handling the even greater volumes of trade expected in the years ahead. Lacking sufficient capital, the government will leverage its strategic location on the Bay of Bengal to court interest from regional powers India, China and Japan — all of which are cultivating stronger relations with the South Asian country on its quest for a higher standard of development to boost incomes, reduce poverty, and diversify beyond the ready-made garments sector towards more sustainable growth.