II. LEADING PROSPECTS FOR U.S. BUSINESS Best Prospects Products and Services For U.S. Exporters Wheat: Although Bangladesh produced 18 million metric tons of rice in the Bangladesh fiscal year ending June 1993 (FY93), reaching commercial self-sufficiency, and 1.2 million metric tons of wheat, it must still import significant amounts of wheat to meet grain consumption requirements. For years, the Bangladesh government was the sole authorized wheat importer, whether the wheat was grant aid or sold concessionally or commercially. However, effective July 1992, the Government removed barriers on wheat imports by the private sector. Roughly 40 percent of wheat imports for FY93 were by the private sector, with flour millers' associations and commodity traders importing 427,000 metric tons of wheat, of which U.S. wheat accounted for 68 percent. The U.S. share of total wheat imports of 1.14 million metric tons for FY93 was 557,000 metric tons. U.S. wheat imports for FY94 are forecast to be slightly lower at 540,000 metric tons because of depressed demand. The value of U.S. wheat exports to Bangladesh for calendar year 1992 was $106 million, making wheat the single largest U.S. export. This figure fell to $40 million for calendar year 1993, reflecting lower wheat prices and the timing of PL-480 shipments. However, wheat imports are expected to nearly double--to 1.5 to 2 million tons--for FY95, reflecting a reduction in government wheat stocks and increasing per capita wheat consumption. U.S. exporters should be able to supply over half, if PL-480 and the EEP continue to be available. Oil and Gas Exploration: The official estimate of Bangladesh's proven natural gas reserves is 10.7 trillion standard cubic feet (SCF). Subsidiaries of the national petroleum company, Petrobangla, produce 732 million SCF per day, which supplies 68 percent of Bangladesh's commercial energy consumption. The outlook for significant additions to gas reserves is promising. However, there is a significant risk of gas supply shortages by 1995. The World Bank has been engaged in long-term discussions with the Bangladesh Government over issues such as appraising discovered gas fields, allowing private exploration and production companies into Bangladesh, and appropriate energy pricing and conservation measures. Petrobangla is largely dependent on the World Bank and the Asian Development Bank for financing its projects. Outlays have been low in recent years compared with close to $950 million in external aid in the 1980s. There is good reason to believe investment will pick up dramatically in this sector, as several multinational oil companies, including two U.S. companies, are in advanced stages of negotiating production sharing contracts with Petrobangla. This will stimulate the market for oil and gas services and equipment. Cotton: Bangladesh produced 24,000 metric tons of short-staple cotton in FY93. Of the 95,000 metric tons imported that year for the spinning mill industry, most came from Pakistan, for reasons of proximity and price, although medium- and long-staple cotton from Central Asian republics made inroads. The United States has a small market in Bangladesh for pima and other long-staple cotton, with imports for FY93 estimated at 10,000 metric tons. All imports of U.S. cotton for that year and the previous one were by private sector mills, which brought in approximately two- thirds of total cotton imports. The value of U.S. cotton exports to Bangladesh for calendar year 1993 was $10 million, under half the levels for calendar years 1989 and 1990, as market share among private sector buyers was lost to the now lower-priced Central Asian pima cotton. However, the market for U.S. cotton is improving, with Pakistani supply problems creating opportunities for exporting U.S. medium-staple cotton. Also, cotton consumption is increasing with increasing domestic per capita cloth consumption and some increasing use of locally produced cotton fabrics to produce garments for export. Should plans to add to the number of integrated textile mills producing cloth for the quality-conscious ready-made garment industry be implemented, it would also improve the market for U.S. long- staple cotton. Power: In November 1992, Bangladesh changed its policy and allowed the private sector to invest in power generation. However, no concrete progress has been made on independent power projects pending the approval of a national energy policy and the drafting and approval of necessary implementing regulations. The power sector market is also depressed by a donor policy not to lend to the government's Power Development Board (PDB) for new projects. PDB--the sole generating and transmission authority for Bangladesh, as well as one of three government distributing authorities--has been plagued by system loss and delinquent accounts receivable. Russian and Chinese companies have partly filled the gap by providing credits for new power plant construction, but the quality of these plants is considered poor. For FY94, Bangladesh was forecast to have a firm generating capability of 2,186 megawatts, a shortfall of 40 megawatts off of peak demand. Plans call for a firm generating capability of 4,187 megawatts by the year 2000. The average electricity tariff is $0.058 per kilowatt hour. With PDB's average delivery cost at $0.065 per kilowatt hour, the cost includes a subsidy of just over 10 percent. The dominant primary energy source is natural gas, which at least in the near term will be in short supply, and there is also scope for coal-fired power plants. Short-term U.S. export prospects are for transformers, treated wood poles, commercial diesel and gas generator sets, and spare parts for U.S. and U.S.-licensed turbines for PDB's plants. If the government is prepared to move forward with independent power plants and additional gas reserves are discovered and developed, U.S. firms should be well positioned to win power project contracts. Telecommunications: U.S. companies have been disappointed in recent tenders issued by the Bangladesh government's Bangladesh Telegraph and Telephone Board (BTTB). BTTB, which has the monopoly for basic service in urban areas and for long-distance service, has a history of bilateral financing and close relationships with the German company Siemens, the French company Alcatel, and the Japanese company NEC. Alcatel appears well positioned for future contracts for digital lines, while NEC is in a similar position for long-distance equipment. Alcatel has been invited to negotiate a technology transfer deal with the government's telecommunications switch manufacturer and to supply 150,000 digital lines at a cost of $157 million, which will be financed by BTTB. However, there are still possible openings for U.S. telecommunications firms, as the Bangladesh government has shifted its preference away from bilateral financing. The World Bank has recommended sectoral reforms which will determine whether BTTB receives a future telecommunications loan. Allowing competition for basic services, which is one recommendation, would create significant opportunities. There is a projected need for another 650,000 lines by the year 2000 which BTTB may not be able to meet itself. Furthermore, U.S. companies have done well in the private sector, which has been given the dominant role in value-added and more challenging services. A U.S. company is the main equipment supplier to what is for now the only cellular phone licensee, and U.S. companies are involved in two rural telecommunications projects. Automated Data Processing: U.S. hardware and software manufacturers dominate the competitive Bangladeshi market. The market is small, with calendar year 1993 U.S. exports of computer hardware and peripherals to Bangladesh of only $2.4 million. However, prospects for increasing personal computer sales are healthy. There will be significant opportunities should either the central bank and the government-owned commercial banks computerize or should BTTB install data transmission infrastructure. The Bangladesh government and local computer dealers, with the assistance of the U.N. Development Program, have shown keen interest in developing an international data processing and software development business as has been done in India. However, the local computer industry leaders believe BTTB is holding up progress. Aviation: The primary customers in the aviation sector are government-owned Biman Bangladesh Airlines and the Civil Aviation Authority of Bangladesh (CAAB), also a government entity. U.S. exports of aircraft for calendar year 1993 were $111 million, leading all U.S. exports, and exports of aircraft parts and spares were $7 million. However, the aircraft export, a three- year lease of a DC-10 aircraft which is counted according to USG rules as an export, is unlikely to be repeated in the near future. With five DC-10s in its fleet, four of which are owned by Biman, prospects for additional future sales of spares, possibly including engines, are good. In addition, Biman will be expanding its service to New York and may be in the market for additional wide-body, long-haul aircraft. However, Biman is already purchasing two Airbus A310 mid-haul aircraft and may instead opt to add additional Airbus craft to its fleet for its Middle East routes, shifting the DC-10s to its onward routes. A U.S. Trade Development Agency-financed study completed in January 1993 identified runway construction and repair, airport lighting upgrades, and navigation and approach aids as items which the CAAB needed in the near future. CAAB has already completed some of this procurement. Textile Machinery: Bangladesh has a thriving ready-made garment industry which exported $1.2 billion of garments in FY93. However, Bangladesh is able to produce only a small quantity of export-quality fabric and consequently imports nearly all of its requirements. Calls from the government to build a modern textile sector have been largely unheeded. Most existing textile mills, although losing money, hold government assistance to new ventures hostage, and the cost of modern, composite mills is beyond the reach of most domestic investors. Nonetheless, there are signs that bank credit may become more available for start-up and existing textile operations. Although Bangladeshi businessmen have a strong preference for new machinery from Japan, Korea, and Germany, they believe that used and reconditioned equipment from the United States could be competitive. Representing value, U.S. equipment would be cheaper than that of competitors it would match on quality and better than that of lower-priced competitors. However, Bangladeshi businessmen have complained about a lack of information and responsiveness from U.S. firms selling used and reconditioned textile equipment. Total Bangladeshi imports of textile machinery for FY92 were $29.2 million of which less than $500,000 was from the United States. Fertilizer: The market for U.S. fertilizer in Bangladesh is at a historic low, but is expected to rebound in the near future. Fertilizer imports were formerly a government monopoly, with a large quantity funded by donor aid, and the government set prices below global ones. During this period, one-third of Bangladesh's fertilizer imports of potash and phosphates were supplied by the United States, with one-third of those financed by U.S. Agency for International Development grants. After privatizing fertilizer imports and distribution beginning in December 1992, fertilizer imports dropped. This was partly why U.S. exports of fertilizer to Bangladesh declined to $2.7 million in calendar year 1993 after having reached $36.9 million in calendar year 1991. U.S. fertilizer market share also declined because of extremely low prices for Commonwealth of Independent States (CIS) origin potash (MOP), probably below cost, an unsustainable situation. Tunisia, which enjoys shipping cost advantages over the United States, is the main supplier of TSP phosphates. Bangladesh imports an estimated 70-75 percent of its potash and 100 percent of its phosphate requirements. Total imports for the nine-month period between July 1993 and March 1994 were 98,000 metric tons of MOP, 97,000 metric tons of TSP, and 41,000 metric tons of SSP.