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Bangladesh: An investment destination in South Asia
M. Mokammel Haque, Executive Chairman, Board of Investment | | |
Bangladesh is virtually located as a landbridge between the growing emerging markets of South Asia and fastest growing markets of South East Asia and ASEAN countries and with the proposed concept of a “Bay of Bengal Growth Triangle” with its apex Chittagong port extending south-west to Calcutta, Madras and Colombo and the south-eastern arm extends through Yangon, to Thailand, to Penang with the third arm to Colombo having growing attention in the investment world. Bangladesh is a possible entrepot, a potential small scale Singapore, for the region covering Bangladesh, Nepal, Bhutan, 8 (eight) north-east Indian states (of Assam, Meghalaya, Monipur, Imphal, Arunachal, Nagaland, Mizoram and Tripura). Also for resource-rich northern Myanmar, a land locked region. Bangladesh is poised to become a regional hub-an entrepot where activities relating to assembling, manufacturing, trading and services, would be some of the areas that are picking up over the years. This geopolitico-economic location of Bangladesh indicates its history of being a nation of sea-farers, traders and suppliers.
Bangladesh is a developing democratic polity on the Westminister model; secular, but not a theocratic state. Bangladesh is a moderating influence in a consistently volatile and often mutually hostile South Asian scenario.
The current macroeconomic situation in the country is, by and large, stable, characterised by a manageable fiscal deficit and a quite low current account deficit. The stable macroeconomic situation is an outcome of a mixture of prudent monetary and fiscal policies that are being pursued. The external current account deficit has also been low. This reflects the continued high growth of exports, increased flows of remittances, moderate growth in money supply as well as that of imports.
The country has a policy of private sector led, liberal economic approach; export oriented, gradually transforming into assembling & manufacturing; seeking for rapid expansion of the service sector. Also looking for substantial joint venture and Direct Foreign Investment (DFI) from abroad in medium and large-scale industries and enterprises, including infrastructure building.
The following facts deserve attention in relation to assessment of Bangladesh as an investment destination:
i) Bangladesh has never defaulted in its debt-service liabilities to multi-lateral and bilateral donors.
ii) Bangladesh grow over 21 million metric tons of food grains, basically rice and some wheat and potatoes which is enough to feed the population of the country, and for building reserve stocks.
iii) Bangladesh never experienced negative growth during last 27 years of it's independence.
iv) Bangladesh exports readymade garments, knitwear, brandname windcheaters, walking shoes, leather goods, shoes and other products, urea fertilizer, pharmaceutical, shrimps and prawn, vegetables, jute and jute products etc. to sophisticated markets of EU, USA, Japan and many other countries. Garments and related export account for more than US $4 billion.
v) The frequency and intensity of natural disasters are far less in Bangladesh than those in the philippines, Japan and even the USA, Bangladesh is located outside the major earthquake zones.
Reforms and liberalization
A significant array of reforms, deregulation and liberalization have been carried out over the recent years in policies relating to virtually every sector of the economy including financial reforms with the aim of globalization challenges for the economy through introduction of international competitiveness and productive efficiency.
We have opened up our economy. We are one of the top exporters of readymade garments to USA and Europe. Our shrimp and leather products exports are rising sharply. We have removed all barriers to investment and business. Government is offering unparalleled facilities to investors. 100% foreign investment is allowed, excepting four reserved items/areas: i.e.
(a) production of arms and ammunition and other defence equipment, and machinery,
(b) forest plantation and mechanized extraction within the bounds of reserved forests,
(c) production of nuclear energy and
(d) security printing (currency notes) and minting.
All other areas are open to private investment. We are providing tax holidays and duty free import of capital machinery, raw materials import for export manufacturing. Expatriates' work permits are easily obtained and unhindered remittance of dividends, capitals, gains on capital etc. are allowed. We have eliminated licensing system and simplified government approval procedure for investment in Bangladesh.
Government has enacted a law in the parliament enabling the private investors to set up private Export Processing Zones (EPZ). The units in private EPZ will enjoy facilities similar to those in government EPZs. The Private Power Generation Policy has been formulated paving the way for private investment in power generation for which a new Electricity Act and a regulatory commission is on their way. Private investments have already been allowed in gas exploration, gas development, power generation and other mining & exploration activities.
An attractive investment destination
Following are some positive aspects which make Bangladesh an attractive location to foreign investors:
i) We have opened up our economy with rapid liberalization of import policies helping globalization of our economy;
ii) According to a Survey of the Economist-risk factors for FDI in Bangladesh are minimum compared to many other countries of this region;
iii) Cost of production especially cost of labour both skilled and semi-skilled is comparatively lower;
ix) Cost of living is also quite low and reasonable and there is no communal or ethnic problems;
v) English language is widely spoken and understood;
vi) Working capital loan as well as term loan from local commercial banks allowed to the industries setup with foreign capital;
vii) Citizenship by investing a minimum of US $5,00,000 or by transferring US $10,00,000 to any recognised financial institutions (non-repatriable);
viii) Permanent residentship is granted to an expatriable by investing a minimum of US $75,000 (non-repatriable);
ix) Avoidance of Double Taxation Agreements and Bilateral Investment Promotion Treaties have been signed with many countries including U.K.
Legal security for investment
i) Foreign Private Investment (Promotion and Protection) Act, 1980 ensures legal protection to foreign investment.
ii) Bangladesh is a member of Multi-Lateral Investment Guarantee Agency (MIGA), Overseas Private Investment Corporation (OPIC) of USA and International Centre for Settlement of Industrial Disputes (ICSID)
iii) Member of World Intellectual Property Organization (WIPO) and World Association of Investment Promotion Agencies (WAIPA).
Private Investment Trend
Board of Investment (BOI), the government's investment promotion agency, is at the forefront of the country's efforts to attract and facilitate investment. The BOI headed by the Hon'ble Prime Minister, was created in 1989 to implement governments' investment policy and promote private participation in the industrial sector. As a result of reformed policy measures undertaken by the government, private investments especially foreign investments in the country have increased manifold. This has been achieved due to adoption of various programmes including holding of seminars/symposium, bilateral talks, press briefings and other interactive processes at home and abroad.
From the analysis of investment trend, it reveals that from 1991-1992 to 1999-2000 as many as 10412 industrial projects both local & foreign have been registered with BOI having total investment outlay of US$ 19074 million with employment opportunities of 1442568 persons. During that period a total of 998 industrial projects both under joint venture and 100% direct foreign investment was registered with BOI having proposed investment of US$ 11667million with employment opportunities of 257159 persons.
During the four years of this government led by Sheikh Hasina from 1996-97 to fiscal 1999-2000, 6232 projects with an estimated investment of US $13291 million have been registered with BOI. Of these, 574 projects involving US $8539 million were proposed with foreign investment. The top investing countries are USA, UK, Malaysia, Japan, Hong King, Singapore, Republic of Korea. France, India, Germany, China, in that order. During the fiscal year 1999-2000, 135 projects involving an estimated foreign investment of US $2119 million have been registered with BOI. Several major oil companies e.g. Shell, UNOCAL, etc. have already invested. Burlington Resources have notified their intent to have major investment in gas and oil exploration. The French TNC LaFarge, the world's largest cement producer is setting up a US $240 million cement factory with 1.2 million MT initial capacity, to be raised to 2.4 MT in phase-wise. Several international telecom companies have set up successful joint ventures and others are expected to make substantial investment in infrastructure projects.
US Investment in Bangladesh
US investment in Bangladesh basically began in the mid nineties when the government of Sheikh Hasina came into power. Bulk investment are in the technology related engineering services. Bangladesh being a market of one thirty-two million people, has potential scope for expansion. At present USA is the top destination of Bangladeshi’s export as well as top list in terms of volume of investment in Bangladesh. So far 85 industrial projects have been registered with Bangladesh Board of Investment (BOI), involving an investment outlay of US $4239 million which accounts for 33.79 percent of the FDI in Bangladesh. Project involving US investment may be grouped in various sector like power generation, oil & gas exploration and production, five star hotels, seaports, airports, software development, cash card system etc. The number of projects implemented is 56.47% of the total. Some of the major companies that are working in Bangladesh are AES Haripur Pvt. Ltd., AES Meghna Ghat Ltd., NEPC Consortium Ltd., SSA Bangladesh Ltd., UNOCAL, Mobil Jamuna Lubricants Ltd.
Further US investment is welcomed in technology intensive / capital intensive projects like construction of roads and high ways, bridges, fly-overs, express ways, composite textile mills, software development and data entry, tourist resorts, petro-chemical projects, basic chemicals, raw materials for pharmaceutical products, diversified jute products, production of capital machinery and equipment for industry, seed production and processing etc.
The competition for private direct investment is becoming ever more intense amongst the countries of the developing world. There is little disagreement about what investors are looking for in terms of economic and political stability, a favourable framework of incentives, adequate social and physical infrastructure, and a legal and administrative framework that facilitates commerce and industry. We believe that Bangladesh has made important strides in all these areas and can assure that the present government stands committed to make that extra effort to facilitate new investment in Bangladesh.
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