Bangladesh's economy is facing mounting challenges, including slowing growth, rising poverty, persistent inflation and a stressed banking sector, compounded by global uncertainties. Another crucial issue is the inequality between recently emerging groups of companies. The economist and civil society are concerned about income inequality in society but hardly talk about inequality among business firms. They humorously talk about puffed Rice (muri) business of big business conglomerates but not about regulatory privilege for the bigger business conglomerates.
Frontier firms are 11 times more productive and more likely to access credit (42 percent vs 29 percent). Credit constraints affect investment and productivity, while collateral and insolvency issues restrict finance flow. Informality persists as firms see low benefits of registration; 40 percent informal firms match small formal productivity levels. This further slows technology adoption across the economy
A WB report identified that Bangladesh economy is taking shape of with a divide in the economy: a small group of highly productive "frontier" firms generates around 75 percent of total sales while employing just 15 percent of the formal workforce, while most firms operate at low scale and productivity. Frontier firms, defined as the most productive companies in the formal sector, spend around five percentage points less time dealing with regulators and face fewer tax inspections than non-frontier firms.
Frontier firms or family-owned group of companies are top-performing companies-typically the top 5-10% in an industry-that lead in productivity, technological adoption, and innovation. These small groups of highly productive family-owned frontier firms now operates alongside a much larger pool of non-frontier firms, including small and medium-sized enterprises and informal businesses with growth potential.
Frontier firms, defined as the top decile of formal companies by productivity, are on average 11 times more productive than non-frontier firms and have continued to pull further ahead.This divide creates a sharp imbalance between output, exports and employment. Frontier firms generate three-quarters of total sales but account for just 15 percent of formal jobs. In contrast, most employment growth has come from non-frontier firms, particularly in domestically oriented services and younger, smaller manufacturers. This divide is strengthened by structural frictions, including high regulatory complexity, weak competition, distortive state support, unreliable electricity supply, and limited access to finance among others. Informality in this context often reflects rational responses to high costs and uncertain returns of formalization rather than low productive potential. This structure also increases inequality in income distribution and limits job creation in SMEs, weakening inclusive growth. It also risks creating regional disparities as investment concentrates in large urban-based conglomerates.
This widening gap between large frontier firms and smaller enterprises creates a dual economy where productivity gains concentrate in a few firms while most remain in low-value activities, slowing overall growth and weakening resilience. WB recommends a dual approach: incentive-based formalization for SMEs, productivity support, smart deregulation, stronger competition policy, neutrality for SOEs, and reliable electricity to unlock private-led growth. Regulatory burden acts as a time tax: managers spend 13 percent time on compliance, licences take 28 days and import construction permits 49 days, far higher than regional peers.
Starting a business costs about $10,000, exceeding 10 percent of revenue for many firms. Heavy regulation reduces investment likelihood by 19 percent. Weak competition oversight allows large conglomerates to dominate while SMEs are crowded out. It also discourages new entrepreneurs from entering formal markets.
Tax and incentive systems deepen inequality: garment and textile firms pay 12-15 percent tax versus standard 27.5 percent, causing 2.4 percent GDP revenue loss. Export subsidies and cheap credit (2 percent vs 13 percent) favour large firms. EDF reached $9.29bn, bonded warehouses remain concentrated in garments, and tariffs average 10.9 percent reinforcing anti-export bias especially affecting manufacturing diversification beyond garments and employment structure. This reduces fiscal space for development spending.
Frontier firms are 11 times more productive and more likely to access credit (42 percent vs 29 percent). Credit constraints affect investment and productivity, while collateral and insolvency issues restrict finance flow. Informality persists as firms see low benefits of registration; 40 percent informal firms match small formal productivity levels. This further slows technology adoption across the economy.
Reforms should focus on reducing uncertainty, simplifying rules, digitizing procedures, easing compliance for low-risk firms, and strengthening competition policy. Trade barriers must be reduced and MSMEs supported to expand formal participation. Digital governance can reduce compliance costs significantly.
Balanced policy support for both formal and informal sectors is essential for inclusive growth, job creation, and a more competitive economy. Such balance improves stability and long-term competitiveness supporting inclusive industrial transformation ensuring more equitable growth across all firm sizes and sectors.
The writer is CEO, Bangla Chemical
