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Over the decades, numerous countries during their developing stages have pursued a ‘manufacturing-led’ development model. Examples include Japan, South Korea, and Taiwan. This model has been largely valued for its capacity to generate productivity gains while creating large-scale employment for low-skilled labor. However, the landscape is rapidly evolving. Emerging technologies such as the Internet of Things (IoT), advanced robotics, and 3D printing are redefining global production dynamics and diminishing the traditional advantages of a competitive labor force. These shifts challenge the viability of manufacturing as an inclusive development pathway alone and raise concerns about widening inequalities, both across and within nations, particularly as automation reduces demand for low-skilled workers.
This presents a challenge for Bangladesh due to upcoming technological threats to its large low-skilled workforce, along with the trade uncertainties, underscoring the urgent need for adaptive economic strategies. As the country approaches its graduation from Least Developed Country (LDC) status amidst global economic volatility, it becomes increasingly crucial to define its economic condition.
Snapshot of Bangladesh’s Economic Growth (FY 2023-24) [i]
In Fiscal Year (FY) 2023–24, the service sector accounted for 51.04% of Bangladesh’s GDP, underscoring its dominant role in driving the overall economic growth. However, despite the lower sectoral share of the manufacturing sector, it experienced a higher growth rate of 6.85% due to the expansion and diversification of manufacturing activities across key industries, such as the textile and apparel, agriculture, leather, and footwear sectors, among many more.
This uneven sectoral development pattern might raise concerns about long-term economic sustainability due to “Premature Deindustrialization”. According to a study by Harvard University, premature deindustrialization is the phenomenon where low- and middle-income countries experience a decline in their manufacturing sectors and shift towards service-based economies without fully benefiting from a robust industrialization phase.[ii]
In recent years, there has also been a sudden decline in the economic units of the manufacturing sector from 12% in 2003 to 9% in 2024. The sudden decline of the manufacturing units exposes the economy to premature deindustrialization, where the sector plays a crucial role in economic participation by generating employment opportunities and enhancing productivity, particularly for a workforce dominated by semi-skilled labor.
Besides, the drastic decline of manufacturing units poses the risks of slowing overall industrial advancement, particularly in an economy that remains largely dependent on manual operations. According to the World Bank, many firms continue to rely on basic or near-basic technologies, with over 40% still using handwritten documentation for business operations, and nearly three-fourths conducting quality checks manually.[iii] This technological stagnation, along with the sector’s contraction, may hinder the country’s ability to sustain industrial momentum in the long run.
Moreover, as Bangladesh gradually shifts towards a service-oriented economy, it becomes imperative to ensure that this transition is supported by a technologically equipped workforce and a robust digital infrastructure. It is equally important to conduct a deep analysis of the country’s trade composition. Bangladesh’s export earnings are predominantly derived from tangible goods, underscoring the need for a cautious and well-structured approach before pivoting from manufacturing-led growth to a service-based model.
Table 1: Key Export Commodities of Bangladesh for FY 2023-24 [iv]
Despite tangible goods dominating the export profile, which constitutes approximately 92.1% of the manufacturing sector’s output, the contribution of the service sector, particularly through freelancing, is growing steadily, even if often not properly represented in formal calculations. Additionally, remittance inflows, which are predominantly service-driven, continue to play a crucial role in sustaining the trade balance. While manufacturing-led exports remain a central pillar of the economy, the expansion of service-driven, intangible contributions indicates a gradual but important diversification in Bangladesh’s economic landscape.
Reflecting this, the recent FDI Heatmap by BIDA identifies key investment priorities, predominantly in manufacturing sectors such as footwear, pharmaceuticals. and core apparel, among others. Side by side, Information Technology Enabled Services (IT-ES) has also been featured among the top target sectors, alongside the manufacturing sectors.
Figure 1: Top Sectors Prioritized by Categories [v]
The FDI heatmap depicts that while IT-ES is recognized as an immediate target within the service sector, BIDA’s initial prioritization for FDI attraction, based on “Immediate Target” and “Enable Quick Entry,” leans heavily towards the established manufacturing sectors. This suggests a near-term strategy focused on leveraging existing strengths in manufacturing while also pursuing opportunities in the IT-ES service sector. Utilizing the existing opportunities will not only hold the potential to generate employment for the low and semi-skilled workforce but also support capital accumulation necessary for building the infrastructure required to sustain and scale emerging service-based industries.
Considering the emerging technological landscape, Bangladesh has been prioritizing workforce development. A key focus has been upskilling and reskilling programs aimed at preparing the labor force for a more technologically integrated future. A good example of this transition could be the country’s leading export industry, the Ready-Made Garments (RMG) sector. The sector is gradually adopting automation and is actively equipping its workers with technical competencies to remain competitive, ensuring that technological progress does not come at the cost of worker displacement or industrial stagnation.
Following the technical skills enhancement initiatives, Bangladesh has also experienced a growth in digital adoption, with 76.51% of the population consuming the internet.[vi] Over the past 10 years, Bangladesh has been actively investing in building and strengthening the digital infrastructure to facilitate citizens, businesses, and professionals to leverage its power to achieve economic empowerment. This progress has earned Bangladesh a Mobile Connectivity Index score of 64.2, comparable to Vietnam’s 65.3 and Cambodia’s 62.5, referring to its establishment on a strong digital foundation.[vii]
Figure 2: Digital Landscape in Bangladesh
To facilitate this movement of the digital economy, the Ministry of Commerce (MoC) has also drafted the Cross-border Digital Commerce Policy. This initiative aims to create an enabling environment for global digital commerce platforms while integrating a wider segment of the workforce into the emerging digital trade ecosystem.
Augmenting the previous analysis, it can be understood that without a multi-faceted approach, the economy risks stagnation in both industrial and technological capacity. As exemplified by the RMG sector, the workers are either upskilled to adapt to emerging technological needs or reskilled to transition into alternative sectors. A study by FSG depicts that workers from the textile and apparel industry often receive skills development training and placement support, which facilitates their job placement in industries such as Tourism and Hospitality.[viii]
This indicates that investment in the manufacturing sector is imperative to ensure that these low and semi-skilled workers can gain proper managerial and technical capabilities for the turnaround. Such investment creates a foundation where more people can access economic development opportunities, particularly through skill enhancement programs and technological training initiatives that elevate their professional competencies.
Similarly, the manufacturing sector’s focus on trading tangible goods, including clothes, leather products, jute, and home textiles, has been helping Bangladesh build stronger international relationships. This international connectivity serves as a medium for technology transfer, as firms engaged with multinational companies naturally adopt more advanced technological systems compared to those operating solely within domestic markets. Through these business partnerships, companies acquire cutting-edge technical knowledge and skills, which they subsequently transfer to their workforce, generating a multiplier effect throughout the economy.
These interconnected dynamics demonstrate how the manufacturing investment enables the low and semi-skilled labor pool to develop fundamental technical competencies. This process acts as a crucial catalyst for human capital accumulation, creating the necessary foundation for a smoother and more productive workforce transition towards higher-value, service-led job opportunities.
All in all, a robust manufacturing sector can be like the facilitator for the broader economic development of a developing country like Bangladesh. It can generate backward and forward linkages with the service sector, enabling a more interconnected and resilient economy. For instance, the infrastructure development encourages tourism, echoing the patterns seen in peer nations, such as Thailand, Vietnam, and Sri Lanka. Moreover, improved physical and digital infrastructure not only supports tourism but also enhances the country’s capacity to export service-oriented digital products. This dual-track approach, where manufacturing growth complements the service sector, drives sustainable and inclusive economic development.
Sadia Karim, a Business Analyst, at LightCastle Partners, has prepared the write-up. For more information, please contact at [email protected]
[i] Ministry of Finance. (2024). Bangladesh Economic Review 2024: Chapter 2 – GDP, Savings and Investment. Finance Division, Government of the People’s Republic of Bangladesh
[ii] Premature deindustrialization. Journal of Economic Growth, 21(1), 1–33.
[iii] World Bank. (2024). Bangladesh: Improving productivity and technology adoption key to a globally competitive manufacturing sector
[iv] Bangladesh Bank, 2024
[v] Bangladesh Investment Development Authority. (2024). Bangladesh FDI Heatmap.
[vi] BTRC. (2024). Internet Subscriber Statistics. Bangladesh Telecommunication Regulatory Commission.
[vii] GSMA. (2024). Mobile Connectivity Index 2024. GSMA.
[viii] FSG. (2023). Just climate transitions in Bangladesh: Accelerating multistakeholder action in textile and apparel and construction industries.
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