Creating jobs and driving growth-where should the focus be?

Despite notable improvements in macroeconomic indicators in recent years, Bangladesh now faces an urgent challenge: creating sufficient jobs and stimulating economic growth. The slowdown in new investment, combined with the closure of existing factories, has left many workers unemployed and weakened industrial momentum. At the same time, gross domestic product (GDP) growth has declined significantly. Provisional estimates for FY25 suggest growth between 3.49 percent and 3.97 percent, marking the lowest rate since the pandemic and continuing a three-year downward trend. This signals not merely a temporary fluctuation, but a deeper structural concern.
In this context, the government must confront a critical strategic choice. One option is to replicate past growth models that delivered short-term expansion but created long-term vulnerabilities, including financial fragility, inefficient capital allocation, and weak industrial competitiveness. While such measures may produce immediate statistical improvements, they risk undermining future stability and growth.
The alternative-and more sustainable-approach is to diagnose and address the root causes of declining investment and factory closures. These may include governance weaknesses, financial sector inefficiencies, policy uncertainty, inappropriate strategy and inadequate support for productivity-enhancing innovation through local value addition. By focusing on structural reforms that improve investor confidence, strengthen institutions, and enhance competitiveness, Bangladesh can create durable employment opportunities and achieve resilient, long-term economic growth rather than temporary, fragile gains.
According to media reports, although foreign currency reserves have recovered and panic in the financial sector has eased, private investment in Bangladesh remains subdued. Foreign exchange reserves, which fell sharply from $48 billion in 2021 to $25.90 billion in August 2024, rebounded to $34.3 billion by February 2026. The exchange rate also stabilised at around Tk 123 per US dollar after depreciating nearly 40 percent over the previous three years. Meanwhile, the balance of payments returned to a surplus of $0.76 billion in February 2026, a notable improvement from the $4.3 billion deficit recorded in August 2024. These trends suggest visible progress in restoring macroeconomic stability.
Despite these improvements, both domestic and foreign investment have declined sharply over the past two years. Registered domestic investment fell by 58 percent in the 2024-2025 fiscal year compared to the previous year, while foreign direct investment showed a similar downward trend. At the same time, factories closed. For example, more than 350 BGMEA member garment factories closed between 2024 and late 2025, particularly in Savar, Gazipur, and Narayanganj, leaving nearly 120,000 workers unemployed.
Despite the restoration of fiscal discipline, non-performing loans in Bangladesh have reached alarming levels, with actual bad loans estimated at35 percent of total lending.Corruption, weak governance, poor monitoring, and political influence are widely cited causes. However, structural economic factors also deserve attention. Declining labour-based local value addition, increasing technology import and rising input costs are eroding profitability, making it increasingly difficult for firms to repay loans sustainably.
These alarming developments raise fundamental questions. Why has investment failed to respond positively and non-performing loans skyrocketed despite improving financial indicators and restored stability? The answer likely lies beyond macroeconomic recovery, pointing toward deeper structural barriers affecting local value addition, profitability, and long-term industrial sustainability.
Among the reasons behind widespread factory closures in Bangladesh, rising production costs, energy prices, and raw material expenses are frequently cited. Yet a deeper, more structural issue has emerged: a significant decline in labour-based value addition. A recent study shows that despite a decade of robust manufacturing expansion, employment in productive sector has fallen by 1.4 million. This suggests that factors beyond financial distress, lack of orders, labour unrest, or political changes are driving the problem.
The readymade garment (RMG) industry, which forms the backbone of Bangladesh's exports, exemplifies this erosion of value addition and competitiveness. In 2013, producing and exporting $1 million worth of garments required 220 workers. By 2024, the same output needed only 94 workers, largely due to automation and adoption of advanced technologies. While technology can boost efficiency, Bangladesh's technology-import-centric low-cost labour model is undermining its core competitive advantage: labour-driven value creation in replication. Imported technologies are effectively replacing the very workforce that has historically powered the country's manufacturing success.
If this trend continues unchecked, relying on past approaches to revive investment and create jobs-without addressing declining labour value-may fail. Bangladesh faces a critical choice: either restructure its industrial strategy to substitute labour-driven competitiveness or risk repeating cycles of growth followed by jobless industrialisation.
Declining labour-based value addition has pushed many industries in Bangladesh into unprofitable territory. In electronics assembly, for example, labour contributes just 2 percent of production cost, while in furniture making it accounts for only 6 percent. With firms still obliged to repay loans and other dues, generating profits becomes increasingly difficult. Combined with rising input costs, these structural challenges make natural closures inevitable for existing firms. Under such conditions, expecting new investment to flourish is unrealistic. Sustainable industrial growth requires addressing the erosion of local value addition and restoring the economic viability of labor-driven production.
It appears that Bangladesh's technology-import-centric,labour-based value addition through replication has lost its ability to generate profitable industrial growth, whether for domestic consumption or export markets. Despite this, there is little evidence that the issue is being addressed at a structural level. Instead, reports indicate that defaulted loans of closed factories are being rescheduled, with fresh loans offered to resume production. While such measures may temporarily create jobs and support economic activity, they raise serious questions about long-term viability. Can firms with low labour-based value addition truly achieve profitability and repay their loans? If the underlying value addition is insufficient and production costs remain high, how can oversight ensure profitable operations and loan recovery? Policymakers must consider this core challenge to determine where investment and job-creation efforts should focus. Without addressing the structural limitations of labour-based value addition, temporary interventions risk perpetuating cycles of unprofitable industrial activity and increasing non-performing loans.

M. Rokonuzzaman, Ph.D is academic, and researcher on technology, innovation and policy. Zaman.rokon.bd@gmail.com