Overview of the Sector

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The construction sector in Bangladesh encompasses two critical components: cement and MS rod production, both integral to the nation’s infrastructure development. Driven by rising income levels, rapid urbanization, and a phase of mass public infrastructural development, the consumption of these materials has increased almost 10 times in the past decade. Consequently, production capacity has improved for both commodities. However, the sector is heavily import-dependent as crucial materials to production need to be availed from overseas.

Clinker, one of the main raw materials for cement production, is imported to Bangladesh from Vietnam, Indonesia, and Malaysia. With the rise in domestic demand and production, the import of clinkers has also increased at a CAGR of 10.3% in the past 5 years. The industry, with a total production capacity of around 78 million tonnes with an annual demand of 39 million, employs around 60,000 people currently.

The steel industry has been growing at a similar rate. According to the Bangladesh Steel Mills Owners Association, there are about 400 steel mills in the country. The current per capita steel consumption in Bangladesh is estimated at 45kg. Experts expect the demand to cross 100 kg per capita by 2030. Around 60% of the domestic steel production is consumed by government projects, while individual and private sector consumption takes up around 25% and 15% respectively. 

The National Industrial Policy (2022) has designated Cement manufacturing as one of the priority sectors with the intention of encouraging more investments for further development to maximize existing potential to generate even greater export revenues. 

Key Factors Driving the Construction Sector

1. Multiple Major Public Infrastructure Development Projects: Bangladesh is undergoing various large-scale infrastructure projects, including roads, bridges, ports, economic zones, and public buildings. These projects drive substantial demand for cement and steel as primary construction materials.
2. Rising Income Levels: As the income levels of the population rise, there is a noticeable trend toward shifting from traditional wooden houses to more durable and long-lasting concrete structures. This transition fuels the demand for cement and steel in the residential construction sector.
3. Increasing Urbanization: Bangladesh is experiencing over 3% net growth of urbanization as more people move from rural areas to cities in search of better economic opportunities. This trend boosts the construction of housing complexes, commercial buildings, and infrastructure, all of which require significant cement and steel consumption.
4. Growing Domestic Capacity for Raw Material Production: The country has been actively investing in the development of its raw material production capacity, such as clinkers and billets, which are essential components for the construction sector. An increase in domestic production reduces reliance on imports, ensuring a stable supply chain for cement and steel manufacturers.
5. Export Potential to India: Bangladesh has gained recognition for producing cement with competitive pricing and quality. Its proximity to India, coupled with lower shipping costs, makes it an attractive source of cement imports for India’s growing construction sector. This export potential creates additional revenue streams for Bangladeshi cement companies.

Export Potential

Bangladesh exports cement to India, Nepal, Myanmar, Maldives and Sri Lanka. The majority of its exports go to India due to low shipping costs and competitive pricing. The industry’s existing capacity can meet the domestic demand and produce for exports, but the lack of backward integration in some aspects acts as a barrier. The introduction of billet production has also created export opportunities for the steel industry.

Market Dynamics

Both the cement and steel industry of Bangladesh is currently dominated by a small number of large players holding the majority of the market share.

Currently, the top 10 companies own almost 80% market share of the cement industry but in general face excess in installed capacity partly due to obsolete machinery. Shah Cement, Bashundhara, Fresh, and Crown are notable brands in the market. The industry needs to import clinkers, limestones, and gypsum. Only 2 manufacturers produce clinkers in Bangladesh; the state-owned company Chhatak Cement Factory Limited, with a limited production capacity, and LafargeHolcim, which produces about 10% of the total clinker required in Bangladesh. Foreign companies hold around 15%-18% of the total market share. LafargeHolcim Bangladesh, a joint venture of a Swiss and a Spanish group is the most significant FDI in the industry. The average cost of a 50 kg bag in the market is 4.5-6.0 USD, depending on the grade.

According to industry experts, the current market size of the steel industry is around 5 Billion USD. Most millers are small-scale, with the top 3 players taking up about 50% of the market share. The three major players of steel production in Bangladesh are Abul Kahir Steel (AKS), Bangladesh Steel Re-Rolling Mills (BSRM), and Kabir Steel Re-Rolling Mills (KSRM). Their main products are rebar with processing scrap for billet. Production inputs such as long products and hot coils still need to be imported, but the industry is consistently developing its domestic backward linkage. In recent years, the steel industry has seen a structural shift where large-scale re-rollers are integrating the production of semi-finished products, owing to import tariff cuts on scrap. In September 2018, Nippon Steel, a Japanese company formed a joint venture with Bangladesh’s McDonald Steel Building Products Ltd to set up an import substitute plant in the Mirsarai Economic Zone in Chattogram. The two companies agreed on an initial investment of $59.19 million to set up the plant.

Foreign Investment-Friendly Policies

• Foreign investors have the opportunity to own companies in the country, with a few exceptions in specific sectors, and they can freely invest in the local stock market.
• Investments and dividends can be fully repatriated, with applicable taxes considered, and reinvesting profits is regarded as a new investment.
• Expatriates can obtain multiple-entry visas, like the E1 and E visas, valid for up to one year, and extendable through the appropriate application process. Business visas, intended for specific purposes like business meetings (not income-generating activities), are also available.
• Foreign investors may claim capital gains tax exemption on the sale of listed securities if a similar exemption is offered in their home country.
• Certain government securities provide an exemption from income tax on interest.
• The removal of multiple-layer taxation on dividends eliminates the cascading impact of dividends being taxed at the initial level

Challenges, Trends, and Opportunities

LightCastle Business Confidence Index (BCI) utilizes the Harmonized Expectation Indicator to take the geometric average between expectation and situation to provide a forward-looking quantitative output of the sentiment on a scale of –100 to +100, where a positive number indicates better expectations than current outcomes

Challenges:

• Import Dependency: Reliance on imports might create supply chain vulnerabilities and expose the sector to exchange rate fluctuations.
• Credit-Driven: The industry heavily depends on credit, making it susceptible to interest rate risks and financial market fluctuations.
• Government Project Uncertainty: Stoppages or delays in government infrastructure projects can result in underutilized capacity among industry players.

Opportunities:

• Improving Energy Efficiency: Significant potential exists to enhance energy efficiency in local industries, offering opportunities for foreign manufacturers to introduce modern, energy-saving technologies and plant facilities.
• Rising Domestic Demand: Both the public and private sectors are driving increased demand for construction, fueled by infrastructure projects and urbanization.
• Steel Industry Synergy: Investment in the steel industry for the production of long products, including large shapes and flat products, presents opportunities for expanding construction materials.
• High-Quality Products: Manufacturing products with long-term strength and water-tightness, such as blast furnace slag cement and specialized materials, cater to the demand for durable and large civil structures.