Economic Diplomacy: The New Regency of Bangladesh’s Foreign Policy

Recently, Bangladesh finalized its 14-page “Indo-Pacific Outlook (IPO)” stating a free, open, peaceful, secure, and inclusive Indo-Pacific vision. And a few days back, the Honorable Prime Minister of Bangladesh, Sheikh Hasina urged the diplomats “to be active in strengthening economic diplomacy alongside brightening the image of the country” as Bangladesh is going to graduate from LDC in 2026. The emphasis on IPO and economic diplomacy is well as Bangladesh has witnessed rapid growth in its economy in the last decade. The consumption market of Bangladesh has broadened, making it fertile for Foreign Direct Investment. With the nature of increased interdependence of the global economy, economic diplomacy is going to be a flashpoint in Bangladesh’s future foreign policy which especially has been reflected in the recently announced IPO.

The government of Bangladesh has outlined a few roadmaps to achieve Smart Bangladesh by 2041. To help achieve those roadmaps, the government has introduced two packages. One is the Economic Diplomacy package and the other is Public Diplomacy package. Economic Diplomacy package has five components and these are: (1) More foreign investment, (2) More trade and export diversity, (3) Gainful employment of human resources both at home and abroad, (4) Transfer of technology, and (5) Quality services to Bangladeshi Diaspora and to others.

The actors involved in economic diplomacy are not only government employees but also the myriad of agencies that are present from decision-making to implementation. Therefore, the present day ‘economic diplomacy’ is not practiced only by the professional diplomats working in Bangladesh missions abroad, but also by the ministers, bureaucrats, business people, politicians, etc. at home.

Background of economic diplomacy

In effect, Bangladesh has always given prominence to economic diplomacy since her inception. After the independence, the two core tenets of foreign policy under Sheikh Mujibur Rahman was 1) diplomacy of recognition, 2) economic diplomacy. Bangladesh achieved the first one within a short period of time. Economic diplomacy was especially given prominence to because of the war-torn condition of the infant economy. This resulted in pragmatic practices in foreign policy where Bangladesh entered into a food assistance program with the United States despite the latter being opposed to the former’s independence. The practical decision-making in foreign policy continued with Bangladesh being one of the first countries in South Asia to opt for economic liberalization in 1980. Currently, Bangladesh is the 34^th largest economy in the world and is expected to be 20^th by 2037. Bangladesh is now the second largest economy in the region of South Asia with a GDP size of USD 429 billion, expected to reach USD 1,628 billion by 2037.

Building a diverse export basket

As Bangladesh is about to graduate from LDC slated in 2026, challenges have risen from the economic forepart. To combat the challenges, Bangladesh has taken initiatives to diversify its export basket. It’s the African continent the country has set its sights on. AHM Ahsan, Vice Chairman of the Export Promotion Bureau (EPB), said the African region has a common customs union that could be the doorway to 290 million new customers. Ahsan added that if a product enters a member country, it could easily reach other African countries without facing customs issues.

Under the rubric of ‘Look Africa’ policy the government envisaged a range of activities to bolster relations with the African countries. The foreign ministry has emphasized boosting relations with the countries of Africa, especially in trade and economy, education, IT and ICT, air and maritime, health, contract farming and peer-to-peer contacts. The export basket includes readymade garments, ceramics, pharmaceuticals, jute, food products, light engineering items, electronic products and home appliances. Bangladeshi companies have a considerable investment in African markets. Square Pharmaceuticals has established a factory in Kenya, as the popularity of Bangladeshi pharmaceutical companies grow. As of FY22, the total volume of export to Africa has been $447.76 million dollars.

In addition, Bangladesh is in talks with Nepal and Sri Lanka and is preparing to sign a preferential trade agreement. Furthermore, the country will also sign deals with Indonesia, Malaysia, and Australia.

Economic Diplomacy in changing political landscape

Bangladesh’s “Indo-Pacific Outlook” signifies the geostrategic importance of Bangladesh in the Indo-pacific region and it is the first of its kind for the country. The Indo-Pacific Outlook, shortened to IPO, is technically a geographical concept that includes both the two regions of the Indian Ocean and the Pacific.

Both economically and strategically, the prospects of the Indo-Pacific region are increasing and drawing the attention of the world powers. The region constitutes 60% of the world’s population producing 60% of global GDP, and provides an opportunity for Bangladesh to bridge the country with this economic hub. Bangladesh shows a clear message of focusing largely on increasing the living standards of its people. The IPS is, literally, a military security capability-building alliance in the Bay of Bengal. The “Indo-Pacific Outlook” of Bangladesh is clearly focusing on infrastructure and economic development – not security. 

The future of economic diplomacy

The South Asia consists of a combined population of 3.5 billion. Bangladesh’s strategic geographic position offers a getaway to this huge market. In today’s world, politics does not lead the economy, by contrast, it is driven by the economy. Economic opportunities are now the pillar for political decisions. Hence, economic diplomacy has been in tandem with Bangladesh’s foreign policy since its wean years.

Bangladesh has taken a variety of strides to strengthen its economic diplomacy as the onset of LDC graduation looms large. Bangladesh has called on the European Union (EU) to extend the transition period of GSP (EBA) from three years to six years for ensuring smoother graduation. The recent AIIB loans granted for a CCGT (combined-cycle gas turbine) power plant to expand the availability of high-efficiency gas power production capacity in Bangladesh, reducing the use of a more polluting and costlier source of electricity. Another $165 million loan for a power distribution system renovation and expansion in Bangladesh aims at diversification of the energy sector. This loan came at a time when the world is divided into two blocs. This gesture echoes Bangladesh’s balanced approach to economic diplomacy.

Economic diplomacy has been a part and parcel of Bangladesh’s foreign policy. From 1972 to 1975 the GDP almost tripled from $94 to $278. This remarkable progress was made possible due to economic diplomacy. With the ongoing political fiasco that has been taking place internationally since the advent of the Russian-Ukraine war, piled with new challenges as the LDC graduation looms large, astute economic diplomacy is needed to ensure that the upward surge in economic growth continues.