Bangladesh’s labour productivity crisis bar to growth, job creation

The GED says a persistent skills gap remains the biggest constraint, limiting the development of a quality workforce and slowing productivity gains across sectors. The labour market also continues to suffer from deep structural weaknesses, with informal employment accounting for 84% of all jobs and youth unemployment rising to 8%.

Low productivity has long translated into low wages and slow growth in real household incomes, weakening domestic demand and slowing the pace of economic transformation. The crisis is now becoming a major risk for Bangladesh’s export-led industries, particularly the readymade garments sector, which remains the backbone of the economy.

Industry insiders say factories face an acute shortage of skilled workers and still rely heavily on foreign technicians for specialised operations such as weaving, knitting, dyeing, finishing, printing and washing.

This dependence leads to a steady outflow of foreign currency and higher production costs, eroding price competitiveness in an increasingly crowded global market. Local workers also remain unfamiliar with artificial intelligence-based automated manufacturing technologies that are now standard in competing countries.

Experts warn that without coordinated reforms in skills development, technology adoption, logistics and domestic raw material production, Bangladesh will struggle to navigate the post-LDC era.

They argue that productivity gains will remain limited without stronger technical and vocational education (TVET), deeper industry–university collaboration and fast-track upskilling programmes.

Logistic weaknesses increasing lead time

Logistics weaknesses are further undermining export competitiveness by stretching lead times and increasing costs. Economists say inefficient port and airport management, weak infrastructure and multiple approvals from different agencies continue to delay shipments.

They believe an effective “single window system” could significantly reduce procedural bottlenecks and strengthen Bangladesh’s position in global supply chains.

Raw material dependence remains another vulnerability. Bangladesh is the world’s largest importer of cotton, sourcing most supplies from China and India, which creates uncertainty in procurement and weakens supply chain resilience.

The GED report shows GDP growth slowed to 4.22% in FY24, far below the level required to generate enough decent jobs for a growing labour force. The unemployment rate stood at 3.35% in 2023, indicating limited progress towards the government’s target of reducing joblessness below 3%.

Labour productivity, measured as real GDP per employed person, has remained volatile. After gains in 2018-19, productivity fell by 1.24% in 2020 following the economic shock triggered by the Covid-19 pandemic.

Although the economy has shifted away from agriculture towards industry and services, employment patterns have failed to adjust accordingly. A large share of the workforce remains trapped in low-productivity sectors, exposing deep weaknesses in the investment climate and labour market structure.

Bangladesh is rapidly transitioning into a services-led economy, but economists warn the shift is proving unsustainable without strong industrialisation. The services sector is still dominated by low-productivity activities such as wholesale and retail trade, offering limited scope for income growth.

Skills shortages also restrict job creation in higher-potential service segments such as finance and information and communications technology. Weak governance in the banking sector during the previous regime further damaged the investment environment and undermined business confidence.

By July 2024, around 25% of total loans were classified as non-performing, constraining credit to productive sectors and weakening financial stability. Large-scale capital flight through money laundering depleted domestic resources needed for industrial expansion and job creation.

The GED stresses the importance of incentivising imports of technology-intensive and energy-efficient capital machinery to support industrial upgrading.

Recent import trends offer some encouragement. Letters of credit opened for capital machinery reached $1.745 billion, while settlements exceeded this at $1.985 billion, indicating strong demand for productive equipment. 

However, long-term data show the scale of the challenge. According to CEIC, annual labour productivity growth averaged minus 0.33% between December 1992 and December 2024. In December 2024, aggregate labour productivity fell by 2.42% year on year, underlining the depth of the problem.

Major push to build a national ‘skills ecosystem’

Against this backdrop, the National Skills Development Authority has launched an ambitious initiative to build an integrated national “skills ecosystem”.

The agency says Bangladesh’s industrial sector, particularly garments, is losing competitiveness mainly because of skills shortages, a technology gap and weak training capacity.

Syed Azharul Haque, competency standard expert at the NSDA, said Bangladesh lags behind in labour productivity largely due to the absence of a coherent skills ecosystem.

He said past efforts were fragmented, with policymakers focusing at times on institutes, at times on machinery, while often neglecting trainer development.

Without skilled trainers, even modern machines cannot be used effectively, he said, adding that Bangladesh has also fallen behind in keeping pace with rapid technological change.

“There was never a strong skills ecosystem where training centres, trainers, modern machines and assessment systems worked together. Now the NSDA is building exactly that,” he said.

Other NSDA officials said more than 300 competency standards have already been developed under a competency-based training and assessment (CBT&A) model. Based on these standards, over 1,400 public and private skills training providers (STP) are now delivering programmes across the country.

They said the authority was established in 2019, but its early momentum was disrupted by the Covid-19 pandemic. As a result, full-scale implementation has only gathered pace over the past one and a half to two years.

The agency’s current goal is to build a comprehensive skills ecosystem that brings training centres, trainers, machinery and assessment systems under a single coordinated framework. Training is now being offered in more than 200 occupations, with preparations under way to introduce programmes in many more.

NSDA officials said skills models from China, the Philippines, Japan and Singapore are being closely studied, with best practices being incorporated into Bangladesh’s training and assessment systems.

A major challenge has been the lack of modern equipment in public training institutes. In many centres, trainees are still taught on machines that have long been phased out in real factories. As a result, workers struggle when they enter industry, creating a major drag on productivity.

To address this gap, the NSDA has moved to actively utilise the National Human Resource Development Fund. 

With support from the finance ministry, the fund is being used to finance modern machinery, training materials and trainer development.

The NSDA said the ultimate goal of training is employment creation. Those who receive training must be able to secure jobs, whether at home, abroad or through entrepreneurship.

To support this employment-focused skills ecosystem, loans have been secured from the World Bank and the Asian Development Bank. Officials said they expect visible progress in the near future.