Industry loses share as services race ahead in economy

Small businesses and service providers, from retail shops to transport and personal services, are expanding more rapidly than formal manufacturing units, prompting economists to question the sustainability of the country’s long-term growth.

Industrial enterprises now account for just under 10 percent of all businesses, down from more than 12 percent two decades ago, according to the 2024 economic census conducted by the Bangladesh Bureau of Statistics (BBS).

In contrast, service businesses dominate the economy, making up more than 90 percent of economic units.

In absolute terms, industrial units grew by 159 percent between 2001 and 2024, reaching around 11.7 lakh. Service businesses, however, surged by more than 223 percent over the same period, bringing the total number of economic units to 1.17 crore.

Employment followed a similar trend. Jobs in industry rose to nearly 94 lakh in 2024, while the service sector absorbed far more workers, with employment reaching over 2.12 crore.

Economists say if this pattern continues, it could dent productivity growth.

“This is what economists call premature deindustrialisation, a pattern seen in many developing countries,” said Kazi Iqbal, research director at the Bangladesh Institute of Development Studies (BIDS).

“Manufacturing usually drives productivity gains and absorbs labour from agriculture. When services expand faster than industry, the economy grows, but not as efficiently or sustainably,” he said.

The economist explained why the distinction between industry and services matters.

According to him, moving workers from agriculture to manufacturing increases productivity and incomes more than a direct shift to services.

“Services create jobs, yes, but the overall growth impact is smaller,” said Iqbal.

Anwar-ul Alam Chowdhury, president of the Bangladesh Chamber of Industries, said that some local sectors have reached saturation. To sustain both economic growth and employment, the country must become a diversified manufacturing hub with a stronger focus on labour-intensive industries.

The business leader said that while Bangladesh’s development has heavily relied on the industrial and RMG sectors, employment growth continues to come mainly from labour-intensive industries such as RMG and light engineering.

He said high-investment sectors, including steel, cement, machinery, and chemicals, generate fewer jobs because of automation, which is increasingly present in garment production as well.

The RMG sector alone contributes about 25 percent to manufacturing output, rising to 40 percent if textiles are included. Other industries account for the remaining 60 percent, but automation limits their potential for employment creation.

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Chowdhury said that even a $50 million investment in textiles may generate only 500 to 1,000 jobs, whereas the same investment in RMG could employ between 5,000 and 8,000 workers.

“Labour-intensive sectors like leather and light engineering are crucial for job creation. Without expanding into these industries, employment growth will remain constrained,” he said.

The 2024 census also shows a slowdown in business expansion.

Between 2013 and 2024, the total number of economic units rose by 50 percent, lower than the 111 percent growth recorded in the previous decade. Micro and cottage enterprises continue to dominate, comprising 96 percent of all units, and nearly two-thirds of these are located in rural areas.

The data point to a deeper structural shift in the economy. Growth in small and informal service businesses is outpacing manufacturing, which limits the country’s capacity to diversify exports and create higher-quality, well-paid jobs.

“Ideally, manufacturing should be the engine that absorbs labour from agriculture and drives productivity,” said Iqbal. “But what we are seeing is that services are expanding faster, without industry growing at the pace it should.”

The census also identifies financing challenges for businesses.

According to it, nearly 86 percent of economic units face capital shortages, making access to finance the most pressing constraint.

About a third of businesses reported difficulties obtaining loans. Other common concerns include infrastructure gaps, rising production costs, and shortages of skilled labour.

Around 8 percent of businesses struggle with consistent electricity and fuel supply, while smaller shares reported issues with marketing and access to raw materials.