Germany May Encourage Automakers to Invest in Bangladesh

Abdullah Al Mobin, economic affairs officer at the German embassy, says German government officials may approach at least one automaker, asking them to consider establishing an assembly plant in Bangladesh to meet the growing demand for high-end autos.

A.Z.M. Anas

October 28, 2019

5 Min Read
Proton Exora
Exora multipurpose vehicle among Proton models being assembled in Bangladesh.

DHAKA, Bangladesh – The German government indicates it could encourage its luxury automakers to establish plants in Bangladesh, especially if the south Asian country invests in its energy, power and transport infrastructure.

“We agreed it would be great if a German carmaker would invest in Bangladesh,” Peter Fahrenholtz, German ambassador to Bangladesh, tweeted after a Sept. 9 meeting with Bangladeshi finance minister Mustafa Kamal in Dhaka, the capital.

Fahrenholtz noted the country’s robust economic growth (GDP expanded 8.13% in 2018-19) has created the potential for domestic sales by German automakers operating in the country of 161 million people.

“Bangladesh offers good conditions and income levels,” he said while leading a five-member business delegation comprising representatives from the Association of German Chambers of Commerce and Industry and the German Asia-Pacific Business Assn.

The number of high-net-worth persons in Bangladesh will expand at an 11.4% compound annual rate by 2023, making it faster growing than even China and India, according to Wealth-X, a New York-based wealth-research firm. The Asian Development Bank predicts growth will reach 8% in the 2020 fiscal year.

Abdullah Al Mobin, economic affairs officer at the German embassy, says German government officials may approach at least one German automaker, asking them to consider establishing an assembly plant in Bangladesh to meet the growing demand for high-end autos. To make this happen, Bangladesh should build “proper” infrastructure and ease administrative and legal difficulties impeding business, he said.

Last year, Bangladesh ranked 176th among 190 countries in the World Bank’s ease of doing business index.

Mohammad Sidur Rahman, marketing manager at BMW Bangladesh, agrees the country has potential. “Bangladesh is a prospective market for high-value cars,” he says, noting that as the world’s second-largest garment exporter, Bangladesh clothing-sector executives are powering luxury-car sales in the country. 

A Mercedes-Benz spokesman says the automaker is exploring the potential for expanding into Bangladesh. “In the case of market growth and sales potential, we are of course continuously checking the framework conditions for the expansion of passenger car production capacities," says Tobias Brandstetter from the company's international business communications team. 

Volkswagen did not immediately respond to a Wards request for comment. 

Local assembly of quality cars would benefit Bangladesh consumers who now spend $35,000 to buy an imported reconditioned car. For the same price, they could buy a new European-branded car if it were made in Bangladesh.

“The market for luxury cars will always be there. The demand for such cars among the upper class will be high,” says Taskeen Ahmed (below, left), an executive committee member of the Bangladesh Automobile Assemblers & Manufacturers Assn.

But he stresses that any German investment also would have to target exports, perhaps to India, Myanmar and Nepal: “Bangladesh’s market is small,” he tells Wards.

Ahmed estimates that of 22,000-23,000 vehicles sold each year in Bangladesh, some 1,000 are high-end and luxury models.

Investors also could source some parts cheaply at local engineering companies, who in turn could target exports after serving local assemblers, says Ahmed, managing director of IFAD Autos, which assembles Indian Ashok Leyland commercial vehicles, including buses and trucks. Bangladesh already is largely self-reliant on the batteries, tires, plastics and glass materials needed for autos, he adds.

Industry insiders say because Bangladeshis are used to buying reconditioned cars, local assembly could alter consumer habits, which would be good news for automakers that already have a foothold in the country, such as Chittagong-based PHP Automobiles, which assembles Proton cars for the Malaysian marque.

“Bangladeshi people will learn how to buy brand-new cars,” says S.M. Shahinur Rahman, head of sales and marketing at PHP. “We want more foreign companies to get in.”

Shifwat Ullah Kollol, head of production at PHP Automobiles, says the potential for selling luxury cars in Bangladesh is bright, stressing that rubber and car bodies already are produced locally and the government has cut import taxes. Auto-industry executives say duties on complete-knocked-down units can reach 212%, while duties on completely built-up units can rise to 300%.

Biplob Kumar Roy, CEO of motorbike manufacturer TVS Auto Bangladesh, sees investment as part of a push by German automakers to grab market share in a country long dominated by Japanese companies. “What you need is aggressive marketing to tackle the way Toyota has occupied the market,” he says. “The market is there.”

Roy suggests German automakers be ready to introduce after-sales services for locally assembled cars to compete with companies such as Toyota who already offer such facilities in Bangladesh.

“Until and unless after-sales service is ensured, no company can grow here,” he says, adding, “BMW parts are not available” in the country.

Roy says German automakers would benefit if they invested in both passenger and commercial vehicles.

Taskeen Ahmed.jpg

Taskeen Ahmed

Commercial vehicles offer tremendous growth potential, given the pace at which Bangladesh is connecting with Asia’s growing network of international road-transport highways. Demand for such vehicles will especially grow when links to India and Nepal improve, Roy says.

German companies also would get a ready welcome from a government that welcomes foreign direct investment (FDI) in the automotive sector, adding Bangladesh’s FDI policy is one of the most liberal in Asia, Roy says.

Mohammad Habib Ullah Dawn, former president of the Bangladesh Reconditioned Vehicle Importers and Dealers’ Assn., says the time is ripe for foreign automakers’ investment, noting Bangladesh is building 100 special economic zones with reliable transport, gas and electricity services.

Demand for autos also will increase as large road and bridge projects are completed, including the one across the Padma River that bisects the country, and which should be open to traffic over the next five to seven years.

 

 

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