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September 2024
This month, we examine Bangladesh’s future after the violent July-August revolution that ousted Sheikh Hasina as Prime Minister and led to Nobel Laureate Dr. Muhammad Yunus’ appointment as Chief Adviser to the interim government. Dr. Yunus now faces the herculean task of stabilizing the country politically and economically. He enjoys broad global backing, with the United States already pledging $200 million for governance and development projects. Meanwhile, the Bangladesh Bank still seeks $6.5 billion in international loans and is launching major banking reforms to tackle corruption.
• Bangladesh Tech Advances: Nagad partners with Huawei to enhance digital finance; 5G rollout accelerates.
• Global Market Trends: Highlights from the recent U.S. Presidential Debate, shifts in Federal Reserve policies, major EU rulings against Apple and Google, U.S.-Europe split grows over ESG investing in CA100+, and Southeast Asia’s growing importance as a global manufacturing hub.
• A. Wahab & Co. Updates: Celebrating our team—Kazi Mahboob’s new roles at IFIC, Taneem’s 1st anniversary, and Noor Islam’s return.
Bangladesh In The Wake of A Revolution
Emerging on the World Stage as the Next Significant Unpredictable Market
Global firms in Bangladesh face new uncertainties following Prime Minister Sheikh Hasina's resignation and departure after 15 years of rule. Economic growth is expected to slow, with Moody's predicting GDP growth to fall below 6% by June 2025. The interim government, led by Nobel laureate Muhammad Yunus, faces the dual challenge of restoring political stability and addressing economic issues, including high inflation, job creation stagnation, and declining foreign exchange reserves.
The textile industry, which constitutes 90% of Bangladesh's exports, could be significantly impacted. The country’s heavy reliance on textile exports and the upcoming loss of preferential trade tariffs add to the economic uncertainty. Major companies like H&M, Levi Strauss, and Inditex are monitoring the situation closely as disruptions from protests affect factory operations. Bangladesh's economy was already under pressure from inflation, supply chain disruptions, and a struggling banking sector plagued by high loan default rates. To address these challenges, the interim government must tackle inflation, reform the banking system, improve tax revenue collection, and diversify the export base beyond the garment industry. These efforts hinge on establishing a stable government, which requires political unity around a reformist agenda.
Long-term political stability remains uncertain, affecting the investment climate. However, thus far, the interim government has garnered support, both at home and abroad. The military has expressly promised its support for the civilian interim government led by Nobel laureate Muhammad Yunus. Additionally, Yunus' government enjoys widespread international support for accomplishing its goals, with some countries like the United States already stepping forward to provide financial support, specifically in the form of $200 million in grants for projects promoting good governance, social, human, and economic opportunity, and resilience.
Spending Cuts, Interest Rate Hikes, and Loans Sought to Stabilize Economy
Bangladesh's new Central Bank Chief, Dr. Ahsan H. Mansur, announced plans to raise interest rates from 8.5% to 9% to combat inflation, which rose to 11.66% in August. The Bank also foresees raising interest rates to 10% or more in the coming months. Alongside monetary reforms, the government is expected to cut spending to increase private sector credit availability. The Central Bank has also halted dollar sales from its reserves. Instead, it has begun purchasing dollars from the interbank market to support government bond payments and open Letters of Credit (LCs) for the energy and agricultural sectors.
The Central Bank is also negotiating an additional $3 billion from the International Monetary Fund (IMF), $1.5 billion from the World Bank, and $1 billion each from the Asian Development Bank and the Japan International Cooperation Agency. The moves come amid economic challenges, including rising prices and disruptions to garment exports due to political unrest. Foreign currency reserves are under pressure, with only $20.5 billion available as of July 31, covering about three months of imports. All these measures aim to stabilize the dollar exchange rate and reduce inflation to 6-7% in the next eight months so that interest rates can eventually be lowered.
Major Banking Sector Reforms Planned to Address Corruption
Bangladesh Bank and the interim government are leading major banking sector reforms to address corruption and recover embezzled assets. The reforms include repatriating laundered funds and establishing a banking commission to investigate and overhaul implicated banks. The new Central Bank chief, Dr. Ahsan H. Mansur, plans to establish a Banking Commission to audit banks, suggest remedies, and recapitalize some banks, potentially leading to nationalization. The government aims to reconstitute the boards of several scandalized banks and seeks international assistance to track and recover the laundered funds. New management teams will oversee data collection and recovery efforts.
Bangladesh Spotlight Industry: Technology
Nagad and Huawei Collaborate to Introduce Smart Payment Solutions in Bangladesh
Nagad, a Bangladeshi FinTech company, has partnered with Huawei Technologies to enhance the country's digital financial services. The collaboration aims to foster the development of a cashless society in Bangladesh, offering customers affordable, world-class financial services and transforming the country's digital transaction landscape. This collaboration will integrate Nagad Digital Bank PLC and Nagad's existing Mobile Financial Services (MFS) with global technologies, providing international-standard digital services. Farid Khan, chairman of Nagad Digital Bank PLC, highlighted the revolutionary impact of Nagad MFS on Bangladesh's financial sector, citing its role in increasing financial inclusion and promoting cashless transactions. With Huawei's support, the goal is to achieve global standards and further transform Bangladesh's financial landscape.
Bangladesh's Mobile Market and 5G Aspirations Flourish Amid Economic Hurdles
The government is accelerating 5G deployment by issuing consolidated licenses and enacting supportive legislation, including the Agency to Innovate (a2i) Bill. Major telecom operators received unified licenses for 2G, 3G, and 4G, streamlining their operations and paving the way for 5G. In Q1 2024, Bangladesh's mobile market shipped 1.8 million units, marking an 11.6% increase from the previous year. This growth follows a period of economic hardship and high mobile device taxation. Xiaomi, Transsion, and Realme dominated the budget segment, while Vivo led the mid-premium segment. Due to infrastructure limitations, only 3.4% of the shipments were 5G-enabled. The Smart Bangladesh initiative, launched in 2009, is a testament to the country's commitment to leveraging technology for socio-economic development. Significant advancements in education, healthcare, and infrastructure have been made, supported by programs like Access to Information (a2i). Continued investment in 5G and ICT infrastructure is crucial for overcoming economic challenges and sustaining growth.
Global Markets: North America
Kamala Harris and Donald Trump Face Off in First Presidential Debate
Former President Donald Trump and Vice President Kamala Harris faced off in Philadelphia on September 10th in a contentious 90-minute debate, touching on key issues like abortion, immigration, the economy, and foreign policy. Hosted by ABC News, the debate featured sharp clashes, with Trump repeating several false claims on topics including immigration and the January 6 insurrection, which CBS News fact-checked. Harris focused on her economic agenda, promoting increased child tax credits and support for small businesses, while Trump pushed for tariffs and linked undocumented immigrants to crime. Polls conducted by major media outlets such as CNN, ABS News, and the Washington Post show that most debate viewers felt that Kamala Harris was the clear winner. Both campaigns are open to another debate, but no further meetings have been confirmed.
Federal Reserve Cuts Proposed Capital Requirement Increase for Major US Banks by 50%
The Federal Reserve has scaled back its proposed increase in capital requirements for the largest U.S. banks following backlash from the industry and political pressure. Initially, the Fed proposed a 19% rise, but this has now been reduced to 9%. The revisions, which mainly impact banks with assets over $250 billion, are seen as a win for major banks but a setback for Fed regulator Michael Barr, who sought stronger reforms after several mid-sized bank failures in 2023. Critics, like Senator Elizabeth Warren, argue the move weakens financial security and increases the risk of future crises.
The Federal Reserve has revised its proposed banking regulations, originally based on Basel III reforms, to address industry concerns. These changes reduce some capital requirements for major banks, particularly for non-lending activities like asset management, and ease rules around mortgages and tax equity financing. The revisions follow years of delays due to pushback from Wall Street, which argued the Fed’s rules were stricter than international standards. The Fed will seek further feedback before finalizing the proposal, as both Republicans and Democrats have raised concerns about its potential economic and market effects.
Global Markets: Europe
Europe’s Highest Court Has Dealt Multi-Billion-Dollar Setbacks to Apple and Google
Apple and Google faced significant legal defeats from the European Court of Justice (ECJ), with rulings that upheld a €13 billion ($14.4 billion) tax bill for Apple and a €2.4 billion ($2.6 billion) antitrust fine against Google. These decisions are final and cannot be appealed, reflecting the European Union's firm stance on regulating Big Tech.
The case against Apple involves unlawful state aid from Ireland, which the EU claims gave the company illegal tax benefits. Meanwhile, Google was fined for abusing its dominance in online search by favouring its own price comparison service. Both companies expressed disappointment with the rulings, which highlight the EU's efforts to hold tech giants accountable and enforce fair competition.
Exits from Climate Action 100+ Reveal U.S.-Europe Discrepancies in ESG Investing
In recent months, several major U.S. asset managers, including JPMorgan Chase, State Street, and PIMCO, have left Climate Action 100+, a global investor group focused on pushing companies to address climate change. The departures highlight a divide between the U.S. and Europe regarding ESG practices. While U.S. companies face increased political pressure, including a House inquiry and scrutiny from state attorneys general, the initiative continues to grow, especially in Europe, where 87 new members have joined since June 2023.
Despite opposition in the U.S., Climate Action 100+ remains a leading global initiative addressing climate risk, with solid support from asset owners like pension funds and universities. A transatlantic divide is evident in voting on climate resolutions, with European investors more supportive than their American counterparts, primarily due to stricter U.K. and EU regulations. In the U.S., accusations have arisen that the initiative violates antitrust laws by allegedly boycotting fossil fuel companies, though no formal cases have been filed. Meanwhile, European regulators provide guidance to enable climate collaboration without breaching competition laws.
Global Markets: Asia Pacific
Expanding Global Supply Chains: Prospects in Southeast Asia
Southeast Asia is emerging as a key global manufacturing hub as companies seek to diversify supply chains and reduce reliance on a single source. Indonesia and Vietnam are leading this shift, with significant increases in foreign direct investment (FDI) and exports. In 2023, Indonesia received $33 billion in manufacturing FDI, while Vietnam secured $16 billion. Both countries have seen export booms, with Vietnam reaching $440 billion and Indonesia $290 billion.
Manufacturers are drawn by upgraded logistics infrastructure and favourable trade conditions. While China remains a production leader, many Chinese companies are relocating to Southeast Asia. This trend, known as "China+1," reflects a broader strategy to improve supply chain resilience, driven partly by geopolitical factors and economic shifts following the COVID-19 pandemic.
Global Investors Flock to Southeast Asia Stocks Amid Fed Policy Shift
Southeast Asia's stock markets are seeing strong performance, with Thailand leading the surge. Four out of the five top-performing Asian equity benchmarks come from the region. Foreign investments are pouring in, with inflows on track for a fifth consecutive week, and the MSCI ASEAN Index is trading near its highest since April 2022. Key drivers include favourable local policies, attractive valuations, and a shift away from larger markets like China due to its economic struggles. Investors are drawn to diverse opportunities across the region, from Indonesia’s commodity firms to Malaysia’s tech sector and Thailand's recovery plays. Additionally, policy support in countries like Indonesia, Malaysia, and Thailand is boosting market confidence.
Since July, the ASEAN index has outperformed the broader MSCI Asia Pacific Index by 14 percentage points, with major brokerages upgrading their outlooks for Southeast Asian markets. Analysts predict this rally could extend into 2025 if interest rate cuts continue and a recession is avoided.
Updates from A. Wahab & Co.
Employee Spotlight
This month, we are delighted to spotlight the achievements of three members of our senior management, Messrs. Kazi Mahboob, Taneem Shahjahan, and Noor Islam.
Congratulations to Kazi Mahboob Kasem, FCA, on his new roles as an Independent Director at IFIC Bank and Chairman of its Audit Committee. As a Partner at A. Wahab & Co. (AWC), Mahboob specializes in audit, IFRS, business process improvement, VAT, and transfer pricing. His broad experience spanning over 25 years, from KPMG to senior roles at Grameenphone and Sanofi-Aventis, enhances our capabilities to guide multinational clients. Mahboob’s strategic insight and commitment to client success continue to drive us forward. We are proud of his accomplishments and ongoing contributions to both our firm and the finance community.
We also congratulate Taneem Shahjahan, MST, on his 1st anniversary with the firm. With over 18 years of experience in finance and accounting, Taneem’s expertise includes taxation of high-net-worth individuals and alternative investments, honed through a decade in the U.S. at firms like Baker Tilly and Grant Thornton. His roles in Bangladesh have expanded his skill set, from finance in media to leading a private equity firm. At AWC, Taneem trains staff on U.S. taxation and supports recruiting and administration. His leadership and knowledge greatly contribute to our strength in delivering exceptional client service.
Lastly, we are excited to welcome Noor Islam Biswas, ACA, back as an Assistant Director. With a decade of experience in banking, manufacturing, and micro-financing, Noor is known for his expertise in accounting, auditing, and financial management. His leadership roles at Shahjalal Islami Bank PLC and United Commercial Bank PLC highlight his commitment to excellence. Starting his career here, Noor gained invaluable auditing and management insights that shaped his professional journey. His return is a testament to his enduring connection with AWC, and we look forward to his contributions to our team’s growth and success.
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