Lessons from Malaysia for Bangladesh’s Next Growth Phase

Bangladesh’s next stage of economic development will depend increasingly on whether the country can move beyond its reliance on low-cost labour and a narrow export base, with Malaysia’s transformation offering a potentially useful reference for building a more diversified, skills-driven and technology-oriented economy.

The comparison does not suggest that Bangladesh should simply copy Malaysia. Rather, development researchers and policymakers can draw lessons from how Malaysia gradually moved from dependence on agriculture and primary commodities towards manufacturing, services, infrastructure and higher-value industries.

For Bangladesh, the challenge is becoming more urgent as wage-based competitiveness faces growing pressure and the country prepares for a more complex post-LDC graduation economic environment.

The ready-made garment (RMG) sector remains the backbone of Bangladesh’s export economy, accounting for around 82 per cent of total exports, according to World Bank data. While the industry has created millions of jobs and transformed the country’s economy, heavy dependence on a single export sector leaves Bangladesh exposed to changes in global demand, trade policies and competition from other manufacturing economies.

Malaysia’s experience shows the importance of developing industrial ecosystems rather than relying on individual factories or sectors. Over several decades, the country built manufacturing capabilities in electronics and electrical products, machinery, chemicals, palm-oil processing and other industries, while simultaneously expanding its services sector. A similar approach could help Bangladesh develop new export industries in areas such as electronics, pharmaceuticals, light engineering, agro-processing, footwear, technical textiles, medical equipment and information technology.

The focus, however, would need to extend beyond attracting investment. Bangladesh would need to ensure that foreign and domestic investment creates stronger links with local suppliers, workers and businesses.

Industrial clusters could play a major role in this process. Instead of concentrating economic activity around Dhaka and Chattogram, Bangladesh could develop specialised production and logistics hubs in different regions, taking advantage of local labour, agricultural resources and transport connections. Such regional industrialisation could also reduce pressure on Dhaka while creating employment closer to people’s homes.

Human capital would be another critical part of the transition. Malaysia’s economic development was accompanied by a gradual expansion of technical and tertiary education and a stronger emphasis on skills needed by industry. World Bank data show that Malaysia’s share of the workforce with tertiary education increased from about 23 per cent in 2010 to 35.5 per cent in 2023.

For Bangladesh, expanding university education alone may not be enough. Technical and vocational training would need to be closely connected to actual industrial demand. Young people would require skills in advanced manufacturing, electrical and mechanical engineering, automation, software, data analysis, logistics and other emerging fields.

A Malaysia-inspired development strategy for Bangladesh could be implemented in phases between 2027 and 2041. The initial phase could focus on strengthening institutions, improving the investment climate, upgrading technical education and identifying industries with strong export potential.

The agricultural sector could also become an important part of Bangladesh’s diversification strategy. Instead of exporting or consuming agricultural products mainly in raw form, Bangladesh could expand food processing, cold-chain logistics, packaging and branded food exports. This would allow farmers to participate in higher-value supply chains while creating employment in rural areas.

Malaysia’s experience with commodity-based industries demonstrates how processing and downstream activities can generate greater economic value than simply exporting raw materials. Infrastructure and logistics would be equally important. Bangladesh has made significant progress in roads, bridges, ports and digital connectivity, but industrial expansion requires reliable power, efficient customs procedures, modern ports, storage facilities and predictable transport networks. Reducing the time and cost involved in moving goods would be particularly important for export-oriented industries competing in global markets.

Financial and institutional reforms would also be necessary. Weaknesses in the banking sector, limited access to finance for smaller businesses and a relatively low tax-to-GDP ratio can constrain private investment and long-term industrial development. A more efficient financial system could help productive businesses obtain capital while stronger governance and transparency would improve investor confidence.

Digitalisation offers another opportunity. Bangladesh has already expanded digital public services and electronic financial systems, but the next step would be to use technology to improve productivity across businesses and government. Artificial intelligence, automation, digital payments, e-commerce and data-driven production could help Bangladeshi companies compete on quality and efficiency rather than wages alone.

At the same time, future industrial growth will have to take environmental concerns into account. Bangladesh’s export industries increasingly face pressure from international buyers over carbon emissions, energy efficiency, waste management and sustainability. Investment in renewable energy, energy-efficient factories, cleaner production and modern waste-treatment systems could therefore become both an environmental necessity and an export competitiveness strategy.

A Malaysia-inspired development strategy for Bangladesh could be implemented in phases between 2027 and 2041. The initial phase could focus on strengthening institutions, improving the investment climate, upgrading technical education and identifying industries with strong export potential. The second phase could emphasise industrial diversification, regional economic clusters, technology adoption and stronger domestic supply chains. The final phase could focus on moving into higher-value manufacturing, advanced services, research and development and innovation.

The ultimate objective would not be to reproduce Malaysia’s economic structure. Bangladesh’s population, geography, labour market and institutional conditions are different. The broader lesson is that sustained development requires a gradual transition�"from cheap labour to skilled labour, from basic manufacturing to higher-value production, and from dependence on a few export products to a broader and more resilient economic base.