Bangladesh: A New Horizon For Investment

Bangladesh is now trying to establish itself as the next rising star in South Asia for foreign investment. The government has implemented a number of policy reforms designed to create a more open and competitive climate for private investment, both foreign and local.

The country has a genuinely democratic system of government and enjoys political stability seen as a sine qua non for ensuring a favorable climate for investment and sustained development.

Bangladesh has been quick to undertake major restructuring for establishing a market economy, with the major thrust coming from the private sector. The country enjoys modest but steady economic growth. Its current development strategy is based on the premise that the creation and distribution of wealth occurs through the acceleration of growth driven by competitive market forces, with the government facilitating growth and making a clean break from the practices of a controlled economy where private investment is constrained. With this end in view. The government has been gradually withdrawing its involvement in this industrial and infrastructure sectors and promoting private sector participation.

The government has moved speedily to translate its policy pronouncements into specific reforms. It has been consistently pursuing an open-door investment policy and playing a catalytic rather than a regulatory role.

Regulatory controls and constrains have been reduced to a minimum. The government has steadily liberalized its trade regime. Significant progress has been achieved in reducing non-tariff restrictions on trade, rationalizing tariff rates and improving export incentives. The introduction of VAT has helped rationalization of the import tariff and domestic tax structures. The tariff structure and the import policy are kept under constant review to identify areas where further improvements are called for.

On the legal and administrative front, the government has initiated measures to give greater autonomy and independence to the judiciary - a pre-requisite as viewed by investors, for the restoration of confidence in the judicial system.

A permanent Law Reform Commission has already been set up to ensure greater transparency and predictability in the way rules and regulations are made and implemented.

An Administrative Reform Commission to rationalize existing rules, regulations and procedures has also been set up.

The Company Law has been updated and modernized. The Securities and Exchange Commission has been established to oversee and regulate the operations of the stock market.

The financial services have been strengthened through enactment of the Banking Companies Act, 1991 and the Financial Institution Act, 1993. The Industrial Relations Act has been amended to enhance labour market efficiency.

Motivated by the simple realization that state-owned enterprises are a drain on its scarce resources and that these are generally inefficient, very costly and slow in responding to changing markets and consumer desires, the country has embarked on a privatization programme, offering substantial opportunities for international investors.

In order to entice investors, the government has put in place an extensive programe of incentives, which include :

• no ceiling on investment.
• tax-holidays.
• tax-exemption and duty-free importation of capital machinery and spare parts for 100% export-oriented industries.
• residency permits for foreign nationals.
• capital, profit and dividend repatriation facilities.
• hundred percent foreign equity allowed.
• exemption of income tax upto three years for expatriate employees.
• term loans and working capital loans from local banks allowed.
• reinvestment of repatriable dividends treated as new investment.
• double-taxation avoidance, as per bilateral agreements already concluded.
• tax exemption on the interest payable on foreign loans and on royalties and technical know-how fees.
• open exchange controls.
• multiple-entry visas for foreign investors.
• investors can take advantage of the generalized system of preference, which allows duty-free access to American, European and Japanese markets.
• Taka is convertible for current account transactions.

The Country also offers :

• extremely competitive labour costs, perhaps the lowest in Asia.
• easily trainable workforce of 56 million.
• a large domestic market, with disposable income growing especially among the middle class.
• strategic location as the bridge between South and East Asian high-growth regions as well as links with other markets e.g. India, Pakistan, Malaysia, Singapore etc.
• low land and energy costs.
• good road/bridge/rail infrastructure, which are being improved; two sea-ports being further developed.
• enjoys Most Favoured Nations status.
• legal protection to foreign investment against nationalization and expropriation.
• equitable treatment with local investors regarding indemnification, compensation etc.

All sectors of industry (except five) are open for private investment. The five sectors reserved for public investment only are defense and defense production, nuclear energy, extraction from reserved forests, security printing and mint and air transportation (some domestic routes and international air cargo already opened for private investment.) and railways.

Some of the foreign private investment opportunities are:

• direct (100%) foreign investment or joint venture investment in the Export Processing Zones (EPZs) or outside EPZs (with the exception of the five industries mentioned earlier).
• portfolio investment by purchasing shares in publicly listed companies through the stock exchange.
• investment in infrastructure projects such as power generation (private power generation policy announced); oil, gas and mineral exploration, telecommunication, ports, roads and highways.
• outright purchase or purchase of shares of state-owned enterprises, which are under process of privatization.
• investment in private EPZ (Private EPZ Act recently passed).

Foreign investment is particularly welcome in the export-oriented industries such as textiles, leather goods, electronic products and components, chemicals and petrochemicals, agro-based industries, green jute pulp, paper, rayon products, frozen foods (dominated by shrimp farming), tourism, agriculture, light industries, software and data processing.

Foreign investment is also desired in high technology products that will help import substitution or industries that will be labour as well as technology intensive.

The country's drive for foreign investment is being spearheaded by the Board of Investment, which was created to facilitate the setting up of manufacturing and other industries in the private sector, both local and foreign. It is a promotional organization dedicated towards providing investment assistance to all investors.

The Board is headed by the country's Prime Minister and it includes Ministers and Secretaries from the concerned ministries as well as representatives from the private sector.

The Board has launched an investment promotion drive at home and abroad to attract investors. The BOI has been assisting in the implementation of new projects as well as providing services.

Bangladesh is on the verge of a significant breakthrough in terms both of international investor confidence and significant inflow of new investment funds.