Beyond RMG: Can Bangladesh Become the New Manufacturing Hub?

Bangladesh’s economic ascent has long been woven around its ready-made garments (RMG) sector. RMG today accounts for roughly 84% of all exports and employs over four million workers. This remarkable success has lifted millions out of poverty, but it also poses a strategic risk: an economy so heavily concentrated in a single low-value sector is vulnerable to shocks. Analysts warn that Bangladesh’s narrow product base – about 79% of RMG exports lie in just five basic categories – could choke future growth. The country must diversify beyond cotton T-shirts or risk stagnation. In the face of global supply-chain realignments, trade disruptions and its impending graduation from Least Developed Country (LDC) status, Bangladesh can no longer afford to be “just a garment exporter.” This requires moving up the value chain into electronics, pharmaceuticals, digital technology and other high-value industries.

Stitching Success and Its Perils
For decades, RMG was Bangladesh’s golden goose. By FY2023–24 it earned some $47 billion in exports and even now remains the second-largest apparel exporter after China. Yet this “low-margin, high-volume” model is under strain. Global buyers are increasingly demanding innovative fabrics (like man-made fibers) and diversified styles. Meanwhile, rising wages, political unrest and events such as the COVID-19 lockdowns have shown how fragile single-sector dependence can be. Moreover, Bangladesh is deeply tied into a few markets and supply lines. Nearly three-quarters of RMG exports go to just nine countries, so a slowdown in the EU or US sends tremors through Dhaka’s economy. Importantly, Bangladesh still relies on foreign fabrics (often from China) – a bottleneck whenever global textile prices spike. The World Bank–OECD “Production Transformation” review underscores that over-reliance on tariff management and subsidies is perilous after graduation Policymakers warn that without new growth engines, Bangladesh’s economy could hit the “export ceiling” of its current RMG paradigm.

Beyond Cotton: Electronics, Pharma and Digital Tech
Evidence of Bangladesh’s diversification is already emerging. The electronics sector, for instance, is booming from a small base. In early 2025 the government reported that 7 million mobile phones were produced in just two months – and plans to export $5 billion worth of digital devices by 2025. Local firms are scaling up too: Walton Hi-Tech Industries, already one of South Asia’s largest appliance makers, is expanding into smartphones, refrigerators, TVs and more. Such fast growth is no accident. Government tariffs on imports, plus a young tech-savvy population, have turned the country into a nascent electronics assembly hub. By making everything from phones to home appliances locally, Bangladesh both meets domestic demand and positions itself for export.

The pharmaceuticals industry is another case study of moving up the value chain. From virtually zero production in the 1980s, Bangladesh now meets 98% of its own essential drug needs domestically. The sector (valued at around $3.5 billion in 2023) routinely produces lifesaving generics – antibiotics, insulin and even complex cancer drugs – at prices far below global levels. It exports modestly (about $205 million in FY2023–24) to countries in Africa and Asia. Crucially, this success was built on policy space: as an LDC Bangladesh benefits from WTO waivers that allow production of patented drugs without licensing fees. Generics makers have thrived, but graduation looms. Once the TRIPS patent waiver ends (expected Nov 2026), drug costs could rise and multinational firms could regain ground. The result: pharmaceutical leaders must now invest in research, bio-manufacturing and patent navigation if Bangladesh is to stay competitive.

Meanwhile, Bangladesh’s digital economy is gaining momentum. Startech, Grameenphone and others not only sell devices at scale but also promote e-governance and tech start-ups. Start-up hubs in Dhaka have multiplied: today Bangladesh accounts for about 2% of Asia’s venture-backed start-ups, up from almost zero a decade ago. Exports of digital services have more than doubled from $0.78 billion in 2012 to $1.73 billion in 2021. While still small globally, this shows potential: for instance, outsourcing digital services to U.S. and Indian markets is growing rapidly. All told, technology and digital sectors – from fintech to software to electronics – are promising levers to lessen Bangladesh’s reliance on cotton.

Graduation and Global Trade Deals
Bangladesh’s upcoming graduation from LDC status (scheduled late 2026) adds urgency to diversification. Graduation is a reward for decades of progress, but it brings significant trade shocks. As an LDC, Bangladesh currently enjoys duty-free, quota-free access to major markets (the EU’s Everything But Arms scheme, GSP schemes of Canada, Japan, Australia, etc.). On graduation, however, tariffs will rise. For example, over 90% of Bangladesh’s EU exports now enter duty-free – afterward an average 9–12% tariff would apply.

In pharmaceuticals, the loss of WTO waivers is acute. Bangladesh has leveraged LDC patent exemptions for decades – indeed, it is now the world’s only LDC with a full-scale pharma industry. Key life-saving generics have been supplied under compulsory license provisions, keeping domestic prices low. After 2026, however, global pharma companies can demand patent enforcement, raising drug costs and making Bangladesh less price-competitive internationally. In response, local producers are scrambling to upgrade GMP facilities, pursue regulatory approvals in the U.S. and EU, and develop in-house R&D to innovate beyond off-patent formulas.

Policymakers are acutely aware of these pressures. The OECD–UN “Production Transformation” review emphasizes that graduation “will affect Bangladesh’s flexibility to continue nurturing industrial capacities”. To mitigate the shock, Bangladesh is negotiating new trade arrangements. For example, talks are underway for an EU GSP+ deal (providing 66% of tariff lines duty-free if Bangladesh meets labour and governance benchmarks).  Negotiations have accelerated for Free Trade Agreements with China, India, Japan, and other neighbors, partly to offset the loss of LDC preferences. Some civil society groups even propose delaying graduation; but others argue that Bangladesh must instead use the moment to upgrade policies – for instance, aligning its new 2023 Patent Act with TRIPS and bolstering IP enforcement.

Building the Foundations: Infrastructure and Regulation
Power and transport infrastructure, which lagged for years, are now being rapidly upgraded – largely with foreign help. Coal, gas and even nuclear plants have been built with Chinese, Russian and Japanese partnerships, roughly doubling electricity generation since 2015. Analysts emphasize that to absorb new industry, ports must handle larger volumes and highways must reduce transit times. The recently enlarged Chittagong and Mongla ports, deepened river channels and expressway projects are steps in that direction.

Regulatory reform is equally urgent. The World Bank–OECD review bluntly calls Bangladesh a “difficult country” for investors due to overlapping agencies and red tape. They also urge modernization of incentives: move from broad export subsidies to targeted schemes for R&D and technology transfer. Intellectual property and skills development are two key gaps. Bangladesh already has a new Patent Act (2023) aligned with TRIPS, but experts say IP enforcement and innovation funding need more support.

Similarly, workforce skills must catch up. Thousands of Bangladeshi workers are being trained in robotics, electronics assembly and digital services, but more is needed. Policy analysts point to Vietnam’s model of vocational institutes co-designed by industry, and South Korea’s apprenticeships with chaebol firms. Already, Bangladesh has technical training centers in RMG and electronics, but expanding these to semiconductors, biotech or precision engineering could help land higher-end manufacturing projects.

In conclusion, Bangladesh’s rise beyond RMG will not happen overnight, but the pieces are falling into place. The economy has demonstrated resilience – even during COVID and political change – and the political consensus favors growth. The country boasts a huge domestic market, one of the region’s cheapest labor forces, and a strategic position bridging South and Southeast Asia. Policymakers must act with urgency: diversify the export basket, implement targeted incentives for high-tech investment, strengthen infrastructure and institutions, and leverage graduation as an impetus to modernize policies.


Imran Hossain teaches
Business Administration at Bangladesh Army International University of Science and Technology(BAIUST), Cumilla.