Private-sector entrepreneurs in Bangladesh are spending nearly 80 percent of their total investment in new factories on land acquisition, earthworks, building construction and other civil works. Comparatively little capital is left for the primary drivers of production: modern technology, automated machinery, research and development, and skills upgrading. Even as overall investment volumes have risen, expected gains in productivity, employment and export capacity have not materialised as a result.

Economists warn this pattern of capital allocation is creating multiple long-term risks for the economy.

First, because a very large share of capital is locked in fixed assets, output growth per unit of investment is declining. Second, the shortfall in investment in technology and production capacity is limiting the scope for new job creation. Third, the reduced opportunity to lower production costs and strengthen industrial competitiveness is heightening the risk that Bangladesh falls behind in international export markets.

These concerns extend to the banking sector. When credit and savings flow disproportionately into land, buildings and other asset-based investments rather than into productive industry, the value added to the economy remains comparatively low. Capital entering the system through lending and deposits is effectively trapped in asset accumulation instead of expanding production capacity, leaving productivity and economic diversification lagging behind rising investment.

Provisional estimates from the Bangladesh Bureau of Statistics show that gross fixed capital formation (GFCF) in the 2025–26 fiscal year reached BDT 17.09 trillion. The private sector accounted for BDT 13.17 trillion, or roughly 77 percent, while the public sector contributed BDT 3.91 trillion, about 23 percent.

Yet the asset composition of total capital formation shows a pronounced imbalance. Construction absorbed BDT 14.33 trillion, or 83.83 percent of total GFCF. Investment in industrial plant and machinery amounted to only BDT 1.39 trillion by contrast, or 8.15 percent. Transport equipment drew 3.75 percent and other assets 4.26 percent.

The structural shift in capital formation reflects a longer-term trend. In the 2017–18 fiscal year, construction accounted for 72.17 percent of total GFCF, while industrial plant and machinery attracted 14.5 percent. Total fixed capital formation that year stood at BDT 8.39 trillion.

Over the intervening eight years, construction’s share has climbed 11.66 percentage points, while the share of plant and machinery has fallen by 5.9 percentage points. Although the volume of capital formation has more than doubled, its composition has become steadily more construction-dependent.

Private investment in Bangladesh has long hovered around 23 to 25 percent of GDP. That is low for an economy of its size and growth ambitions.

But raising the investment rate alone will not be enough. Where capital is directed and what kind of productive capacity it creates matter just as much, according to experts. The same amount invested in modern machinery, technology and production systems can produce a very different economic outcome from capital tied up in land, buildings and other low-productivity assets.

“The question is why we are so heavily inclined towards residential and commercial construction beyond infrastructure, and how much of that investment is linked to directly productive activity. Weaknesses in the investment climate may be behind this,” said Dr Zahid Hussain, former chief economist at the World Bank’s Dhaka office.

He told Bonik Barta: “Investing in industry or production involves time and transaction costs related to land, approvals, power and gas, infrastructure and financing. For an investor, keeping money in land, apartments or buildings can therefore seem relatively safe. During periods of inflation especially, these assets serve as a ‘store of value’ for many.”

Pointing to the many apartments and commercial properties in Dhaka that have remained vacant for long periods, Hussain said: “That means huge sums of capital are locked up there without generating the expected economic activity. If productive investment opportunities in the banking sector are weak, lending may also tilt towards housing and property.”

“The central question is why our savings and capital are flowing more into fixed assets than into productive industry, agriculture, services and technology. Investment in infrastructure and necessary housing is certainly needed. But unless we improve the investment climate for industry, technology, machinery and productive businesses, this dependence on construction will raise questions about how efficiently resources are being allocated across the economy,” he added.

When excessive capital is absorbed by land acquisition, site preparation and factory construction, projects often face a severe working-capital squeeze once operations begin, leaving little liquidity for raw materials, wages and utilities.

Furthermore, buying surplus land or building infrastructure without proper cash-flow assessments risks overcapitalisation, driving up production costs and eroding market competitiveness.

The utility crisis hitting industries is compounding these risks. Even after spending heavily on land and civil works, some entrepreneurs are unable to start production for years because they cannot secure gas or electricity connections. Interest on project loans continues to accrue while factories generate no revenue, accumulating debt before operations even begin.

East Coast Group Chairman Azam J Chowdhury says production-oriented sectors are being held back by poor deployment of technology, high construction costs, the energy crisis and abnormally high land prices.

“The rise in rod and steel prices has pushed construction costs up sharply,” he told Bonik Barta. “In cement, companies have built excess capacity relative to demand and are being forced to sell at a loss just to survive. Large government infrastructure projects, meanwhile, can’t be kept within their fixed budgets.”

Chowdhury identified soaring land prices as one of the biggest obstacles to industrial investment. He said middlemen and broker syndicates, exploiting opportunities to inflate compensation during government land acquisition, had pushed prices to abnormal levels. Industrial entrepreneurs now face extremely high land costs even when the actual sellers do not receive the prices they seek.

Simply buying land cannot create industry without reliable access to power and energy, the sector’s basic inputs, he stressed, adding that Bangladesh remained heavily dependent on imports for everything from everyday items such as staples to heavy industrial machinery.

Chowdhury pointed to Vietnam, which has established itself as a major global production base by developing domestic manufacturing capacity and technology.

Bangladesh should likewise prioritise light industry and other production-oriented sectors rather than relying on the garment sector alone, he said. That would help meet domestic demand and reduce dependence on imports.

The private sector’s financing structure is also compounding the weakness in capital formation. With the capital market and other sources of long-term finance relatively underdeveloped, businesses rely mainly on bank loans.

As of March 2026, 44 percent of total bank lending, or BDT 7.89 trillion, had gone to the private industrial sector. By contrast, the capital market has seen no new initial public offerings (IPOs) in the past two and a half years. Industrial businesses have therefore had little opportunity to raise fresh equity during that period.

Over the five decades since independence, funds raised from the capital market have amounted to only 6 percent of total fixed capital formation.

The tendency towards asset-backed lending could heighten these risks further. When banks place too much weight on collateral values rather than a project’s future cash flow when approving loans, entrepreneurs may have an incentive to buy land and other fixed assets instead of building productive capacity.

If lenders fail to assess how much a project is likely to produce, demand for its output and whether it will generate enough cash flow to service its debt, loans can later turn sour. Several major loan scandals in the past offer precedents.

AnonTex Group, a garment and textile business, secured large bank loans to expand, but a significant portion was tied up in land and infrastructure in Tongi and Gazipur rather than core industrial capacity. A working-capital squeeze and production disruptions subsequently pushed much of the group’s debt into default.

Leather and footwear exporter Crescent Group similarly defaulted after heavy bank borrowings were diverted into land purchases in Savar.

Chattogram-based Saad Musa Group likewise became a major defaulter after investing borrowed funds in land, apartments and an industrial park.

“The pace of government development spending and large infrastructure projects has slowed considerably in recent times,” said Masud Khan, chairman of Bangladesh Securities and Exchange Commission (BSEC).

“Private-sector investment in new factories, plants and machinery has also fallen significantly, and some factories have even shut down. Construction, particularly private house-building, has accounted for a larger share of total investment. But this is not because construction investment has surged. Its share has increased because investment in other sectors has declined,” he told Bonik Barta.

Khan added: “While house-building in villages and small towns continues with remittances and other sources of funds, much of that investment doesn’t create new production capacity.”

He noted that uncertainty over future demand, sales and cash flow has reduced entrepreneurs’ appetite for new projects, while banks have also become more cautious in lending, further constraining investment.

“Although construction’s share of total capital formation has grown, that’s not being reflected in new factories or production capacity. Returns on housing and commercial property are also comparatively low. So the high share of construction can’t be treated as productive capital formation. A significant part of it is going into low-productivity investment,” Khan said.

Construction dominates fixed capital formation worldwide, but nowhere is it as concentrated as in Bangladesh.

According to World Bank and OECD data, construction accounts for 40 to 50 percent of GFCF in developed economies, 50 to 60 percent in developing economies and 60 to 70 percent in least-developed economies.

Globally, the share of capital devoted to infrastructure and construction generally does not exceed about 70 percent. Construction accounts for between 55 and 65 percent of total fixed capital formation in South Asia.

Mashrur Arefin, chairman of the Association of Bankers, Bangladesh and managing director of City Bank, said he was concerned that such a large share of the country’s fixed capital was concentrated in construction and infrastructure.

“These statistics raise questions about the quality of Bangladesh’s investment structure,” he told Bonik Barta.

“But it would be wrong to assume that because construction and infrastructure account for around 84 percent of fixed capital, 84 percent of bank lending has also gone to that sector. The matter needs deeper examination,” he said.

Arefin added: “GFCF includes investment from both the public and private sectors, as well as capital from domestic and foreign sources. As a banker, I find it difficult to reconcile the actual experience of loan distribution with such a large share of GFCF being concentrated in construction and infrastructure.”

He warned that a large share of private capital going into land, buildings and construction, and a comparatively small share into new factories, machinery, technology and production capacity, is a “concern for the economy” as it could weaken productivity, export capacity and new job creation.

“The issue also matters from a banking perspective,” Arefin said. “Long-term infrastructure or industrial projects generally take time to generate cash flow. If project costs rise in the meantime, construction is delayed, or demand for goods and services falls short of expectations, repayment capacity can deteriorate quickly.”

Arefin called for an investment structure where necessary infrastructure investment continues, while the share of capital going into factories, machinery, technology, export-oriented industries, SMEs and productive capacity rises significantly.

Despite years of effort, new equity capital from foreign direct investment has not increased substantially in Bangladesh.

Low FDI means more than a shortage of foreign capital; it also limits technology transfer, management expertise, integration into international supply chains and access to new markets. Technology and managerial skills are particularly important for raising productivity, according to experts.

The efficiency of private-sector investment is also weak, said Md Kausar Alam, president of the Institute of Cost and Management Accountants of Bangladesh.

“For a long time we have heard of bank loans being used to buy cars, invest in land and flats, speculate in the stock market and launder money abroad. There are questions about whether all the private investment visible on paper is actually being reflected in the economy as productive investment,” he said.

Alam added: “Banking sector’s weaknesses, gaps in loan distribution and supervision, favouritism, the tendency to default deliberately and a culture of keeping loans alive through repeated rescheduling have tied up vast sums of money.”

The ICMAB president noted that it was essential to evaluate not just the volume of private investment but also its efficiency and its real contribution to productivity.

Analysts say the central challenge for Bangladesh is no longer simply to increase the volume of capital but to ensure that it is used productively.

Investment in land, housing and infrastructure is necessary for the economy, but if much of it remains idle for long periods or is not linked to new production capacity, its economic returns remain limited. By contrast, investment in modern machinery, technology, research and development, skilled manpower, energy efficiency, export diversification and logistics lays the foundation for higher productivity.

Bangladesh’s challenge is no longer simply to increase investment but to convert savings into capital that raises output, creates jobs, expands export capacity and strengthens the economy’s long-term competitiveness. Experts stress the priority is to shift the economy from “accumulating capital” to forming “productive capital”.