The worrying contraction of manufacturing sector

Bangladesh's manufacturing sector appears to be undergoing a structural shift -- one that raises concerns about the country's long-term industrial trajectory. The recently released Economic Census report highlights a complex transformation in the economy, marked by rapid expansion in the number of economic units but a noticeable decline in the relative importance of manufacturing. This divergence signals deeper structural challenges that warrant urgent attention. According to the report, the total number of economic units has surged to over 11.7 million, up significantly from 7.82 million in 2013. At first glance, this growth suggests a vibrant and expanding economy. However, a closer look reveals a less encouraging trend: the share of manufacturing has fallen from 11.1 per cent in 2013 to 9.57 per cent in 2024. This contraction indicates that while more businesses are being created, fewer are engaged in manufacturing -- traditionally a key driver of productivity, exports, and employment. Interestingly, despite the decline in its share of total economic units, manufacturing has managed to maintain -- and slightly increase -- its share of employment. This suggests that existing manufacturing enterprises may be absorbing more labour, even as the sector fails to attract a proportionate number of new firms. Nevertheless, manufacturing now ranks only as the fourth-largest category in terms of economic units, far behind wholesale and retail trade (40.19 per cent), transportation and storage (22.22 per cent), and other service activities (10.31 per cent).
The underlying reasons for this shift are not difficult to identify. The census paints a stark picture of the challenges faced by businesses, particularly in the manufacturing sector. A staggering 85.89 per cent of economic units report insufficient access to capital as their most significant constraint. Compounding the problem, 34.42 per cent of enterprises cite difficulties in obtaining loans from formal financial institutions, pointing to persistent inefficiencies in the credit delivery system. Beyond financing, businesses grapple with a host of operational challenges. Infrastructure deficiencies, rising production costs, dearth of skilled labour, and unreliable electricity and fuel supplies further undermine competitiveness. These barriers collectively discourage investment in manufacturing, which is typically more capital-intensive and risk-prone than service-oriented activities.
At the same time, the service sector continues to dominate the economic landscape, accounting for over 90 per cent of all economic units. The industrial sector, by contrast, comprises less than 10 per cent. The structure of the economy is also heavily skewed toward micro and cottage enterprises, which together make up more than 95 per cent of all units. The expansion of economic activity in both rural and urban areas is a positive development, with rural units outnumbering their urban counterparts. However, without a dynamic manufacturing base, this growth may not translate into sustained economic transformation.
While the dynamism of service sector is commendable, the contraction of manufacturing is undeniably troubling. Revitalising this sector requires targeted policy interventions -- particularly in improving access to credit, upgrading infrastructure, and developing skilled human capital. Without such measures, Bangladesh risks undermining the very foundation needed for long-term, inclusive, and export-led growth.