Russia and Bangladesh: Trade and Investments Dynamic

Unrealised potential as Russian clothing manufacturers should look east for textiles

By Emil Avdaliani

Russia’s turn eastward plays out differently in the relations with developing Asian countries. Most benefit from the Western sanctions imposed on Russia as the latter seeks to alleviate the effects of the unfolding decoupling with the European Union. There are however states whose relations with Russia have faced significant obstacles over the past year. One such example is Bangladesh with its booming economy which had been experiencing an upward trade and investments trajectory with Russia, but since 2022 has seen a downward trend in both areas. Both countries try to minimize the negative effects from the sanctions and on political level some ambitious investments and trade schemes are indeed being laid out. Thus far however there still much work to be done to achieve meaningful progress on cooperation between the Eurasian Economic Union (EAEU)/Russia and Bangladesh.

Russia – Bangladesh Bilateral Trade

In 2021, Russia’s trade turnover with Bangladesh amounted to nearly US$3 billion, an increase of 23.20% (US$562 million) compared to 2020. However, in 2021-2022 Russia’s share in Bangladesh’s overall exports was just over 2%, while other partners, for instance, the US accounts for more than 15%, and European countries for more than 55%. In the financial year of 2023, Bangladesh’s exports to Russia decreased by 27.87%, in comparison with the previous year and totaled US$460.39 million.

Russia’s exports to Bangladesh mainly consist of machinery, equipment and vehicles, metals and metal products, food products and agricultural raw materials, chemical products, mineral products, wood and pulp and paper products. Another critical component in the exports to Bangladesh is wheat. As Russia’s wheat exports in July-August 2023 hit a record of 9.6 million tons, Bangladesh ranks fourth among top importers. Indeed, before 2022, nearly half of the country’s total 7 million tons of annual wheat demand was imported from Russia and Ukraine.

In the structure of Russian imports from Bangladesh the main share of supplies fell on the following types of goods: textiles and footwear, food products and agricultural raw materials. Textiles are however predominant making up nearly 95% of all Bangladeshi imports to Russia.

The major challenge for the bilateral trade relations is the lack of knowledge about each other’s business climates and the minimum interaction between the Russian and Bangladeshi business circles. This is well reflected in the fact that a significant part of bilateral trade goes through third countries. The sanctions and the war further complicated the situation. For instance, since February 2022 when export to Russia was complicated, Bangladesh has started sending containers to Russia via different routes. One of such alternatives is the route through Poland.

Predominance of intermediaries limits the space for trade expansion between Russia and Bangladesh. Acknowledging the fact Moscow has recently shown ramped its efforts to strengthen the bilateral commercial ties with Bangladesh by suggesting direct shipment of critical products (e.g. fertilizers) via the so-called G to G system. Another product is liquified natural gas, which Bangladesh has an expanding demand for.

In order to address the issues, improving connections between Bangladesh and the EAEU is one strategy. In 2019 an agreement of cooperation was reached between the EAEU and Bangladesh, which laid out the aspects of cooperation in customs and various sanitary spheres aiming at

facilitating bilateral trade. In January 2022 Bangladesh proposed signing a free-trade agreement (FTA) with the EAEU, which fits into the country’s broader strategy of widening its ties with global political and economic blocs such as BRICS (though Bangladesh was not among the newly-added members). Indeed, the growth of Bangladesh’s GDP by an average 7% annually as well as nearly 11% increase in the industry serve as powerful incentives for cooperation between Bangladesh and the EAEU countries.

However not much was achieved since the signing of the cooperation agreement. Russia’s reorientation of trade toward Asia serves as a powerful motivation and the development of ties through the mechanisms of the EAEU, including the conclusion of preferential trade agreements, is seen as promising. These were the subject of discussion during the second meeting of the joint EAEU-Bangladesh working group in March 2023. The next meeting of the joint working group will be held in 2024 and the two sides will also consider the possibilities of cooperation such venues as the Eurasian Economic, St. Petersburg International and Eastern Economic forums.

Russia – Bangladesh Investments

Western sanctions imposed on Russia complicated the investment relations between the two countries. With U.S. and European sanctions barring Russia from much of the international banking system, Bangladesh could not send a US$110 million due payment for the Rooppur nuclear power plant constructed by Rosatom. Eventually, the two sides agreed to that the accounts could be paid in Chinese yuan. Construction of the US$12.65 billion Rooppur project, which began in 2017, was postponed to 2024. Ninety percent of the project is financed through a Russian loan.

Another example comes from February 2023 when the information was published in the Russia press about Bangladesh authorities’ decision to ban 69 Russian ships from entering their ports, which have been under sanctions from the collective West since 2022.

In comparison with other countries’ investments into Bangladesh, Russian investments (beyond the Rooppur project) are minimal. In comparison with Chinese investments, for instance, by late 2022, more than 500 Chinese companies were operating in Bangladesh’s and overall Chinese investment in 2021stood at US$1.26 billion. Yet, one possibility for Russian companies is modernization of electricity stations across Bangladesh. Earlier in 2023, Moscow proposed modernizing Ghorashal Unit-1 and Unit-2.

There is however large potential for Russian companies in Bangladesh. The production of textiles and tailoring is an attractive sphere. Since numerous global brands have left Russia from 2022 investments into Bangladesh’s textile industry could bring significant financial benefits. Russian companies could also aim at investing into Bangladesh’s rising number of economic zones, whose number, by the government’s projections, is expected to reach 100 by 2030. In the longer term, investments and trade between the two countries could also develop given the expansion of the International North-South Transport Corridor running from Russia to Iran and India, Bangladesh with its developing ports infrastructure could play an important role in the Eurasian trade.

Emil Avdaliani is a professor at European University and the Director of Middle East Studies at the Georgian think-tank, Geocase.

Dezan Shira & Associates have a partner firm in Bangladesh. For assistance in the Bangladesh market please email asia@dezshira.com

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