Bangladesh: a good destination for foreign investment

Bangladesh: a good destination for foreign investment

Md. Joynal Abdin

The Financial Express on May 3, 2009

Economic supremacy is the dominant feature of the present-day world. In order to survive, we have no option but to attain economic development. Foreign investment is recognised as a key ingredient for economic growth for the least developed countries (LDCs) and for Bangladesh, being one of the LDC with a domestic savings rate — which in quite insufficient for investment after fulfilling its basic needs — the importance of foreign investment is undeniable.

Today investing in a developed country is not viable due to very high labour cost and other factors. As a result, global investors are seeking for opportunities to invest in the developing countries or LDCs for the best return. But as an LDC, we have a lot to do to attract such investments in our own interest. Foreign direct investment (FDIs) will create employment, increase efficiency of our labour, encourage technology transfer and develop new exportable sectors for us.

Foreign investment in Bangladesh unfortunately, is not satisfactory. According to the UNCTAD, in 2003 Bangladesh had achieved only 0.05 per cent foreign investment, while the proportion was 0.9 per cent in India, 0.52 per cent in Vietnam, 10.2 per cent in Indonesia and 70 per cent in China.

In Bangladesh, most foreign investments have gone into the energy sector (mineral resources / mining). Comparatively foreign investment in the manufacturing sector is not high. This may be due to the fact that Bangladesh has a small domestic market and is not fully capable of consuming quality goods due to low purchasing power.

Indian’s Tata group was expected to invest $2.0 billion in Bangladesh. The group had plans to set-up a $ 700 million basic steel industry in Ishwardi to produce hot rolled coil and other basic steel products. It also wanted to invest $ 700 million in two 500 megawatt power plants near Ishwardi. Its proposal also included investment of a $ 600 million fertiliser plant in Chittagong.

The Tata group would need 200 mmcfd gas per day in the initial stage, which would rise to 3500 mmcfd once the plants went into full operation. The group planned to invest $ 1.50 billion in the first phase and $ 0.50 billion in the next phase. Tata wanted a 20-year guarantee of gas supply at a price and an agreed formula which was considered not viable for the state. Till now Tata has no investment in Bangladesh, but it has strong trade relations with the country. Tata group’s $ 2.0 billion investment is expected to be at least five times the total foreign investment received by Bangladesh in the past few years. Now Tata may not be too keen to invest in Bangladesh but it was not our fault because they demanded what was not feasible for us.

Why would foreign investors come to Bangladesh? Because the government has given the highest priority to attract foreign investment, making Bangladesh otherwise an attractive location. The foreign investors has following advantages in Bangladesh:

a.      The country has cheaper labour force;

b.      Tax holiday up to 12 years;

c.       Bangladesh allows 100% foreign ownership;

d.      Permanent residentship for foreign nationals investing more than US $ 75000 or equivalent amount;

e.      Concessionary financial benefits similar to the local investors;

f.        Lower inflation rate compared to other Asian countries;

g.      A wide range of tax exemptions;

h.      Facilities for repatriation of invested capital, profits and dividends;

i.        Multiple entry visa facilities for visiting foreign investors;

j.        Reinvestment of reportable dividend treated as new investment;

k.       Bangladesh enjoys MFN and GSP facilities from a number of countries including USA; and

l.        Bangladesh has two seaports for export and provides relatively low cost establishment.

The potential areas for investment in Bangladesh include: agriculture, fisheries, agro-based industries, chemicals, light industries, natural gas and oil exploration, textile, tourism, energy sector, telecommunications, etc.

Although the prospects for foreign investment in Bangladesh are otherwise bright, we have at the same time some barriers to investment. Such barriers include, mainly, the following:

Political instability: a common problem in Bangladesh. Though we expected substantial change in our political environment, we are not observing any positive signs yet. This is a major disincentive for foreign investors.

 

Corruption: Corruption is the main problem in Bangladesh at present. It plays a negative role in attracting foreign investment here.

Lack of infrastructural facilities: Modern communication system is essential for foreign investment. But Bangladesh’s poor infrastructure hinders the prospect of foreign investment. Only one operational port and one Dhaka-Chittagong highway are not sufficient for industrialisation of Bangladesh.

Trade union: Most of the trade unions of the country have political ties with the parties in power and opposition. This hampers industrial production and pollutes the with environment. As a result, production targets fail, the industry incurs losses.

Long procedure: Redtapism, indecision, delays in decision making etc., are the common features of our bureaucracy which frustrate investors. Currently, the period for investment in China is six days, this is 166 days for Bangladesh.

Negative image: Bangladesh is known to the world as a country of corruption, political unrest, natural calamities and poverty. Militancy is now being added to create a negative image abroad.

The Nobel Laureate Mr. Amaryta Sen, however, was positive about our country. He said though there are problems and lackings in various sectors, the country very bright future it is going to attract some important foreign investment in the near future. Not only this Bangladesh has developed its manpower rapidly.

Our demand to our policy makers is ‘make Amaryta Sen’s word a practical scenario for Bangladesh.’

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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