2m people enter labour market each year, only 900,000 find jobs

Between 2016 and 2024, approximately 2 million people entered the labour market in Bangladesh each year. In contrast, about 900,000 new jobs were created annually.

Of these new jobs, 7 out of every 10 were in agriculture, while employment in the industrial sector actually decreased.

Despite the country's economy growing at an average rate of 6 per cent annually over the previous decade, the benefits of this growth have not been evenly distributed among businesses. The top 10 per cent of firms, in terms of productivity, control 75 per cent of total sales in the formal sector but account for only 15 per cent of employment.

Other businesses face obstacles like complex government procedures, lack of financing, unfair competition, and power shortages. Senior managers spend an average of 13 per cent of their time dealing with government regulations, while 71 per cent of firms experience power outages, costing them approximately 9 per cent of their annual sales.

These insights are presented in a special chapter of the World Bank's 2026 Bangladesh Development update report. The agency's assessment highlights that, although Bangladesh has experienced economic growth, productivity, investment, and employment at the enterprise level have not kept pace. Sales, exports, and state benefits are becoming increasingly concentrated in a few companies.

The chapter is titled "What Business Environment is Needed to Boost Employment."

The chapter is not based on a single survey. Information about formal enterprises comes from the World Bank Enterprise Survey 2022, along with other reports such as Business Ready 2025, Business of the State 2019, Bangladesh Country Private Sector Diagnostic 2025, and UNCTAD’s investment data.

From the fiscal year 2015-16 to 2024-25, Bangladesh’s GDP growth averaged 6 per cent, but there wasn’t the same level of progress in terms of productivity, investment, and the creation of new businesses at the firm level.

Annually, about 900,000 new jobs were created from 2016 to 2024, while approximately 2 million people entered the labour market each year. Roughly 7 out of 10 new jobs were in agriculture, while the industrial sector lost workers.

For women, the situation was worse. During this period, 4.2 million new jobs were created for women in agriculture, but in the industrial sector, jobs decreased by 1.1 million and by 800,000 in the service sector. The participation of women in the labour force dropped from 42.8 per cent in 2022 to 38.4 per cent in 2024.

Bangladesh is described as having a 'productivity paradox'. While the overall economy has grown, the productivity and innovation capacity of most firms have not kept pace.

The per-employee earnings of production and service sector firms in Bangladesh are about one-third of the comparative standard in South Asia. The service sector employs the largest number of people in the economy, but labour productivity growth has stagnated since 2016.

The establishment of new enterprises is slow. Only 8 per cent of formal firms have been established in the last five years, whereas in China, this rate is 32 per cent. Similarly, 21 per cent of Bangladesh’s formal firms started operations after 2012, compared to 40 per cent in Vietnam.

Investment has declined since 2013, especially in smaller firms. Foreign direct investment remains below 1 per cent of GDP, one of the lowest rates in the world. Most foreign investment has been directed towards utilities rather than manufacturing and market-oriented services, which could have provided technological and skills benefits to local suppliers.

The top 10 per cent of formal firms in terms of productivity are referred to as 'frontier firms' in the report. On average, these firms are 11 times more productive than other formal firms.

In 2022, about 75 per cent of the total sales revenue in the formal sector came from these firms, up from 41 per cent in 2013.

Exports have also become more concentrated. A decade ago, frontier firms accounted for 37 per cent of total export revenue, which increased to 69 per cent in 2022.

The proportion of exporting firms fell from 25 per cent to 13 per cent over the same period, indicating that export earnings are now even more concentrated among a few firms.

Frontier firms generate three-quarters of total sales revenue in the formal sector but represent only 15 per cent of formal employment.

Most employment is with non-frontier firms, which include locally focused service providers and young, small manufacturing businesses. However, these firms have relatively less opportunity for investment, technology adoption, and access to export markets.

The ready-made garment sector shows similar paradoxes. Frontier firms in this sector generate nearly half of total sales revenue but provide only 1 in 12 formal private sector jobs.

The World Bank argues that sustainable job growth cannot rely solely on the large and export-oriented firms; small, medium, and promising informal enterprises must also have the opportunity to become more productive and grow.

Senior managers of firms in Bangladesh spend an average of 13 per cent of their time on complying with government regulations and meeting various departmental requirements, which is the highest compared to regional peers.

This burden varies by region, with managers in Chattogram spending around 40 per cent and in Barishal 60 per cent of their time on handling government regulations.

Non-frontier firms invest about 5 percentage points more time than frontier firms dealing with regulatory agencies and are subject to more tax audits. The report suggests that the gap cannot be explained solely by regulatory compliance; it may also reflect differential treatment based on company size.

Obtaining an operational licence in Bangladesh takes an average of 28 days, and construction-related permits and import licences each take about 49 days. This is nearly twice the time required in China or India for similar approvals.

Starting a formal business costs roughly $10,000. For more than half of firms less than six years old, this expense represents more than 10 per cent of their annual sales income.

The regulatory burden affects investment as well. Firms that spend relatively more time dealing with government regulations have a 19 per cent lower likelihood of investing in fixed assets.

In the Business Ready (B-Ready) assessment, Bangladesh scores low on market competition, commercial dispute resolution, and insolvency management.

Weak enforcement of competition rules allows low-productivity firms to survive in the market, while hindering the entry and growth of newer, more productive firms.

Nearly 60 per cent of state-owned enterprises operate in competitive markets, but due to regulated prices, protective tariffs, and special privileges, they enjoy undue advantages even with low productivity.

The commercial court process is slow and uncertain. Mechanisms for restructuring problematic businesses or orderly market exits are weak, impeding the transfer of capital from lower to higher productivity firms.
Significant inequality in tax benefits:

The general corporate income tax rate in Bangladesh is 27. 5 per cent. In contrast, garment and textile producers benefit from rates between 12 per cent and 15 per cent.

The report indicates that due to corporate tax breaks in 2021, the government lost revenue totaling about 2.4 per cent of GDP. With a tax-to-GDP ratio of approximately 8 per cent, this loss is considered significant.

A large share of state benefits is also concentrated within a small segment of enterprises. The Export Development Fund (EDF) alone reached $9. 29 billion in the fiscal year 2020-21, providing loans to exporters at a minimum interest rate of 2 per cent, while other producers faced interest rates as high as 13 per cent.

About 42 per cent of frontier firms have access to bank loans or credit lines, compared to 29 per cent for non-frontier firms.

The bonded warehouse system allows for the duty-free import of raw materials, but over 90 per cent of this benefit is focused on the garment and related sectors.

Companies that sell goods locally face an average tariff of 10.9 per cent for importing finished goods, almost double the average in South Asia.
Such protection may make domestic production more profitable than competing in international markets, reducing the incentive to export. The World Bank describes this as a structural 'anti-export bias'.

While over 90 per cent of bonded warehouse benefits go to the garment and related sectors, in June 2026, 10 more export sectors were allowed to import duty-free raw materials, backed by bank guarantees. Separate bonding regulations have also been made for gold jewelry exports.

According to the report, about 22 per cent of businesses in Bangladesh are partially credit-constrained, while another 8 per cent are fully credit-constrained.

Firms with bank loans have labour productivity about 4. 5 per cent higher than others, indicating that financing plays a critical role in technology adoption, skills investment, and business expansion.

However, new and small firms often lack adequate collateral, and effective systems to assess their creditworthiness are weak. The framework for restructuring troubled businesses or resolving insolvency is also inadequate, meaning promising enterprises do not receive the necessary capital.

Responsibilities for attracting and supporting investments are scattered across multiple bodies, including the Bangladesh Investment Development Authority (BIDA), Bangladesh Economic Zones Authority (BEZA), Bangladesh Hi-Tech Park Authority, various ministries, and local-level agencies.

There is an overlap in the responsibilities of these agencies but a lack of effective coordination. No single institution is accountable for the entire range of investment services, from registration and incentives to post-investment support.

As a result, businesses often have to obtain multiple similar approvals, and inconsistencies appear in the application of policies and incentives. Larger, export-oriented firms in Export Processing Zones enjoy comparatively simpler processes, especially garment factories, while general businesses face more fragmented systems.

In response, the government has restructured the investment service framework. In August 2026, BIDA, BEZA, and the PPP Authority were merged to form 'Invest Bangladesh', although several agencies like the Hi-Tech Park Authority, BEPZA, and BSCIC remain separate. Thus, not all investment-related services have come under one entity, and a one-stop service is still not practically available.

Unreliable electricity supply is identified by the World Bank as the most cited obstacle for businesses in Bangladesh.

About 71 per cent of companies face power outages, with an average occurrence of 26 times per month, causing about a 9 per cent loss in annual sales.

Obtaining an electricity connection takes an average of 89 days, and almost a quarter of firms occasionally resort to using their own generators instead of the grid, increasing production costs.

Power supply is even less reliable outside economic centres, exacerbating regional disparities in business opportunities. The report indicates that electricity demand could grow by about 7 per cent annually through 2030.

Not all informal enterprises in Bangladesh are low-productivity. About 40 per cent of informal enterprises operate at productivity levels similar to small formal firms.

Highly productive informal businesses are primarily less than 15 years old, with around 80 per cent operating in retail and service sectors. Nearly 85 per cent are located in the Dhaka metropolitan area.

These businesses do not have access to formal markets, bank loans, supplier development programmes, or government support. Yet they perform relatively well due to their proximity to large markets and transportation networks.

The main reasons informal enterprises do not formalise are the cost and time associated with registration. Approximately 73 per cent of firms cited this as an impediment.

About 71 per cent of businesses mentioned the potential tax burden as a barrier to formalisation, and 61 per cent identified the inspection or interaction with government officials as an issue. Lack of necessary information was cited as an obstacle by 35 per cent of firms.

However, these businesses are aware of the benefits of becoming formal. Half believe formalisation would improve access to credit and finance, while 49 per cent think it would help in acquiring new customers.

The challenge is that these benefits are not immediate or guaranteed, but the costs of registration, taxes, and inspections have to be borne from the outset. As a result, staying informal becomes an economic decision for many firms.

The World Bank advocates for 'smart deregulation', which involves simplifying regulatory procedures rather than removing them altogether. The aim is to make approval and compliance processes easier for lower-risk businesses while strengthening oversight for higher-risk activities.

In the short term, the report suggests expanding one-stop services nationwide, ensuring not just online applications but fully digitising the entire approval process from start to finish.

Simplifying the registration, inspection, and compliance process for small and medium enterprises (SMEs) is crucial, along with offering incentives like tax breaks for formalisation. Also, providing finance for these businesses by reducing lenders' risk is essential. Equitable enforcement of rules across all sectors, and creating a level playing field for state-owned and private enterprises for competition is emphasised.

For reforming trade policy, the adoption of a national tariff policy is necessary. Gradually reducing tariffs and tariff-equivalent barriers while digitising and paperless managing of border trade is advised.

The World Bank suggests creating a centralised database for all state-provided tax breaks, low-interest loans, and other incentives. Objective criteria should define which companies qualify for benefits, and the selection process must be transparent.

Before and after providing assistance, its impact should be assessed, and each form of support should have a fixed term to avoid becoming a permanent entitlement. This would link state aid to productivity and diversification outcomes.

Medium-term strategies include introducing different licensing and inspection systems based on business risk. Lowering approval requirements for low-risk activities and enhancing oversight for higher-risk businesses are recommended.

Implementing digital case management for commercial dispute resolution along with specialised training for personnel and expanding commercial courts across the country is suggested.

Investment service agencies need coordinated accountability. Long-term recommendations include alternate dispute resolution, risk-based inspections, and extended-term financing.

The World Bank advises connecting small and medium enterprises (SMEs) with the supply chains of large domestic and multinational corporations, which can create avenues for technology access, management know-how, and new market entries.

SMEs must be supported in meeting product standards and the requirements of major clients. Opportunities to enhance the capacities of highly productive informal businesses and gradually bring them into the formal sector must be provided. The scattered SME support programmes should also be aligned better.

The overarching message of the report is that rather than relying on protection and discretionary benefits, priority must be given to competition, transparency, and productivity to ensure the private sector's growth translates into more and better employment opportunities.