Merits and Demerits of Foreign Direct Investment

Merits and Demerits of Foreign Direct Investment

Md. Joynal Abdin

The Daily Sun on May 26, 2017

 

There are significant reserves of foreign currency in Bangladesh. It is mounting up during the last few years. At the same time, we have a good amount of unutilised money in the banking system. It seems good to listen that we are becoming a wealthy nation with handsome cash in hand. But till now our investment in percentage of GDP is about 29%. It is 56% in Bhutan, 33.25% in India. Bangladesh’s investment in percentage of GDP is increasing day by day but the growth rate is too slow.

It is a matter of investigation whether foreign currency reserve and unutilised cash in banking system is mounting because of this poor performance in investment or not. In terms of attracting foreign direct investment (FDI) we are performing even poorer than the neighbouring or competitor countries. Bangladesh earned USD 1191, 1726, 1432, 1830 and 2001 million during the last five fiscal years. It is only 0.98, 1.19, 1.74, 1.47 and 1.73% of the GDP whereas India earned FDI of 2.00, 1.31, 1.52, 1.70 and    2.11% of its GDP during the last five years. Vietnam got FDI 5.48, 5.37, 5.20, 4.94 and 6.10% of its GDP. The Maldives received FDI 17.29, 9.05, 12.91, 10.77 and 8.70% of its GDP during the last five years.

Let’s have a look at the benefits of receiving FDI into a developing country like Bangladesh. FDI could offer the following benefits to its host country:

1    Increasing supply of foreign currency and channelise international sources of industrial funds;

2    Increases employment opportunity and help to reduce unemployment rate;

3    Increases skills of the host country’s labour and facilitate technology transfer;

4    Increases managerial knowledge of the host country’s professionals;

5    Foster economic growth, export earnings;

6    Introduces products standardisation and international exposure of other products;

7    Provides corporate tax to the government and contribute in revenue growth;

8    Creates a competitive business environment and productivity improves with the competition;

9    Develops international channel of distribution;

10    Assists in adopting international standard policies and creates a global business regime;

11    Contributes to development of backward and forward linkage local enterprises and

12    Assists in improving living standard of the stakeholders through different social responsibility measures.

Bangladesh is fighting with the development barriers like unemployment, poverty reduction, enlarging product basket, enlarging export basket etc. since its independence. It achieved significant economic advancements but till we have scope to grow further. Therefore, the government attaches the highest priority to industrialisation of the economy by any means. Already we have eight Export Processing Zones (EPZ), 78 Industrial Estate developed by BSCIC to host investment. Furthermore, the government is progressing to establish 100 Special Economic Zone (SEZ) in Bangladesh. All these arrangements are to host investment either from local or foreign sources. Bangladesh Investment Development Authority (BIDA) has been restructured by merging the Board of Investment (BoI) and Privatisation Commission together. BIDA is organising conferences, seminars, road shows abroad to draw attention of the foreign investors. The government declared a long list of fiscal and non-fiscal incentives to boost up the investment movement. But till now Bangladesh’s performance in FDI attraction is considered poor. It is because a number of other factors like good governance, political stability / understanding among the political parties, security and safety of investment, law and order situation, availability of industrial logistics, hassle-free business registration and licensing etc. are involved with an investment decision making.

Now Bangladesh has to go for a comprehensive investment services like one stop service, approaching foreign investors with specific project proposals, justification of investment policies and revision (if necessary), establishment of sector specific technical and engineering institute, establishment of sector specific testing laboratories, signing free trade agreements with existing and potential export destinations, reducing business licenses and registration requirements, activating BIDA with own manpower instead of the cadre officials deployed in deputation to activate the investment attraction measures.

Bangladesh has everything to be a good destination for foreign investment. It is located at the heart of South Asia, corridor between SAARC and ASEAN countries. It has a large number of domestic consumers. Purchasing power of local people is increasing day by day with economic growth of the country. Bangladesh has a good number of sectors to invest profitably with supply of enough manpower in competitive cost. The government keeps assisting the investors with a long list of fiscal and non-fiscal incentives. Finally export items of Bangladesh are enjoying duty-free and quota-free market access to most of the export markets other than the USA. All the LDC facilities under the WTO arrangement are enjoying by an entrepreneurs while doing international trade with Bangladesh. Therefore, Bangladesh could be considered as one of the most attractive locations to relocate global business corporations to the EPZs and SEZs being developed by the government.

It is for sure that Bangladesh needs foreign investment to boost-up its economy but we must remember that there are some adverse effects of FDI too. For example, FDI in some sectors could have an adverse effect on local employment sector. For better understanding we could imagine a scenario where a large corporation establishes a highly sophisticated readymade garment factory here in Bangladesh, where most of the tasks are completed by robotic technologies instead of human labour. Its productivity is much higher than human labour and product cost is also lower. In such cases, local factories will lose its market share. After a certain period it could be seen that local factories are reducing their manpower to adjust with the situation. Large number of people loses their employment due to that large investment. Similarly extreme competition from an FDI company may be the cause of death to many local SMEs. Repatriation of a large FDI conglomerate could have an adverse effect on foreign currency reserve or balance of payment of a country. Therefore, we must consider all these possible adverse effects of FDI into the local economy and adopt legal framework to mitigate these threats.

Finally, we could state that, Bangladesh needs FDI to functionalise its upcoming SEZs and generate employment for the growing number of job seekers. But we must reserve few product and service sectors for the local entrepreneurs. Welcoming campaign for FDI has to be increased and equipped with enough precautionary measures. Adequate preparations, practical drive and a business friendly local business environment could encourage the investors to invest here in Bangladesh. We have everything to become a middle income country by 2027 if our government, political leaders, decision makers play respective role accordingly. Otherwise piecemeal investment drive will not give us complete output up to the expectation.

Challenges Before Newly Elected FBCCI Leaders

Challenges Before Newly Elected FBCCI Leaders

Md. Joynal Abdin

The Daily Sun on May 15, 2017

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) is the apex trade organisation of the country. It represents all the Chamber of Commerce and Sectoral Associations in home and abroad. In one sentence we could term it as the focal point of Bangladeshi Private Sector. The General Body (GB) of FBCCI includes representatives from all the district chambers, joint chambers, metropolitan chambers, trade/sectoral associations including the women chambers and associations. No doubt that FBCCI general body is the comprehensive and inclusive forum with proper representations from each of the sectors and sub-sectors of Bangladeshi entrepreneurs. They are the key players of the economy. They are contributing directly in GDP growth, employment generation, export earnings and finally in the poverty alleviation of the country.

The general body of the Federation used to elect the Board of Directors through nomination or direct election. As part of their regular activities the GB of FBCCI elected its leadership for next two years (2017-2019) on 14 May (Sunday). We are waiting to welcome a group of dynamic, forward looking, knowledgeable and effective leaders to lead the federation for next two years. Current election of FBCCI has a significant difference than that of the previous elections. Current transformation trend of the economy (from agriculture dependent economy into industrialized economy), remarkable amount of foreign currency reserve, significant amount of idle money in the banking system, rising number of idle higher educated youth, achievement of our national economic visions, local and foreign investment trend, single product dependency in the export earnings, upcoming national election, concurrent change in the international economic ecology etc. made this election significantly different than that of the previous one. Therefore newly elected FBCCI leaders (Board of Directors) will face a series of built-in challenges in-front of them. The newly elected Board of the federation could consider the following issues in their action plan:

  1. Amicable Settlement with the New VAT and Other Business Related Laws: The government of Bangladesh is planning to implement new VAT law from July 2017. It is one of the widely discussed issues that the new VAT law (Draft) has few inconvenient points for the business community. There are scarcities of in-depth research findings with the issues. Therefore the upcoming leaders could take necessary initiative to measure the inconveniences through methodical research. Foreign best practices could be identified and select a best practice to be replicated here in Bangladesh in this regard. Both the parties the government and the private sector have to be cooperative to reach into an amicable settlement with this new VAT law. The newly elected Board of FBCCI have to consider the issue as first priority to safeguard stakes of the micro, small, medium and new entrepreneurs here in the new VAT law as well as other upcoming business related laws.
  1. Finding out a Way Forward to Utilise the Idle Money of Banking System: We have mentionable amount in the foreign currency reserve along with a significant amount of unutilised funds in the banking system. This unutilised fund has to be invested into productive sector for boosting up the investment wheel. We have unutilised funds but the rate of interest is comparatively higher than that of the competitor countries. So a way forward has to be identified to utilise this idle fund and moving the investment wheel.
  1. Initiative has to be taken to Diversify Product Basket: Bangladesh is the top denim exporter of the world. It is one of the key players in knitwear and readymade garment (RMG) export. What is next? We have potentials in leather goods sector, agro-processing sector, plastic sector, light engineering sector etc. But none of the sectors are coming up with a movement like RMG. Why newer sectors are not becoming export leader or near about RMG? This is because we have limitations in terms of new product designing and development. At the same time we have limitation to maintain international standard of existing products. Therefore new FBCCI leaders could take the issue seriously and establish few product research, design and development centers for potential sectors. They could claim funding from the development partners in this regard.

The government of Bangladesh announced 2017 as Leather Goods Year. But in absence of significant development initiatives (projects and policies) this announcement may not be worthwhile. The newly elected business leaders could take this issue to make the Prime Minister’s announcement meaningful.

  1. Internationalization of Bangladeshi Brands: Bangladesh is still lagging behind to establish an international brand. Walton has started this journey in a limited scale. I think all the major exporters of the country have this ability to establish own outlets abroad and establish Bangladeshi brand image with the world class products. The upcoming business leaders could negotiate with the government to allow outwards investment with few precautionary measures.
  1. Creating and Maintaining a Congenial Trade Regime with the Major & Potential Export Markets: Brexit, US presidential views with NAFTA and sloth movement of implementing WTO agreements etc. issues are giving us a signal of tomorrow’s global trade regimes. Bilateral trade arrangements are becoming faster and fruitful means of international trade regime. Till now we do not have a single effective bilateral trade, service or investment agreement with any global players or our major trade partners. Therefor the new FBCCI leaders could think of the issue seriously and insist the government to sign bilateral trade agreements with our major and potential export destinations to create and maintain a congenial trade regime with them. Otherwise we could be isolated in the international market after a certain period.
  1. Private Sector’s Capacity Building to Achieve SDGs: We are committed to attain the sustainable development goals (SDGs) by 2030. Government is enacting necessary policies and laws to facilitate the SDG achievement. But main game has to be played by the private sector. Almost all the sub-sectors of Bangladeshi private sector have limitation in terms of skills, knowledge and know-how. Fiscal and technical limitations are toughing the goals near about impossible. Therefore the private sector leaders like FBCCI Board has to be proactive to play due role in capacity building of the private sector as per requirement of concerned sectors.
  1. Special Attention has to be given to Employment Generation: Idle brain is a devil’s heaven. Idle young force is the engine of social unrest. Bangladesh has 3 million plus unemployed young forces at this time, another 2.2 million jobseekers are entering into the job market every year. Low or primary educated youth are going abroad as worker but a significant number of (not less than 1 million) higher educated middle class youth are remaining idle. This huge number of non-productive young people could be harmful for the family, society as well as the country. This problem could be more visible as an uncontrollable challenge in near future. Therefore it is the right time to think with the employment generation, facilitating self-employment opportunities like freelancing, entrepreneurship etc. Government alone could not be successful if adequate support is not available from the private sector.

From the above discussion it is clear that the new leadership of the Bangladesh private sector i.e. the Board of Directors of the FBCCI has significant role in employment generation, capacity building of the private sector, fostering the investment movement, creating and maintaining congenial trade regime in home and abroad. Therefore the GB members of FBCCI could think a while to elect learned, capable, farsighted, proactive and dynamic leaders to contribute in nation building movement toward a sustainable economic development of Bangladesh.

Trade Organisations in Sustainable Economic Development

Trade Organisations in Sustainable Economic Development

Md. Joynal Abdin

The Daily Sun on April 26, 2017

There is no alternative of individual and institutional income generation for economic development and poverty alleviation of a country. Ensuring employment is the most effective tool for facilitating individual and institutional income generation. There are about 162 million populations in Bangladesh and about 120.70 million of them are in workable age group. For providing employment to such a huge number of populations government has only 1.7 million positions in civil service, a mentionable percentage of this government positions remain vacant forever; for example 18% of government positions are vacant now in Bangladesh. As per a recent report there are 58.10 million people involved with private sector jobs.

There are no exact data regarding the total number of businessmen in the country but it is stated that, there are about 30 million businessmen in Bangladesh. From the above statements we could find out a summery that there are about 37.20 million unemployed people in Bangladesh now.

Another recent report shows that there are more than 3 million higher educated unemployed populations in Bangladesh with 2.2 million newcomers in the job markets every year. It is easier to manage and employment opportunity for a low educated or uneducated youth but difficult to manage a career opportunity for a higher educated one. Uneducated or lower educated manpower could migrate into Middle East as a labour but higher educated youth could not do so. Thus the number of unemployed higher educated people is rising day by day. If such a trend continues for next few years they could be another burden for the society as well as for the nation.

Before meeting a terrible situation of the above mentioned problem we must have to identify a way out of it. The government has to take the issue as a new challenge and come out with appropriate solutions. The government could mitigate this problem with professional education system, skills development through practical training, creating entrepreneurs through entrepreneurial education, creating entrepreneurship friendly policy regime, creating start-up friendly fiscal and economic policies, self-employment oriented education / training, hands-on training for creating freelancers etc. Such types of projects should get the highest priority in the upcoming national budget of the government.

There are few problems which are impossible to solve by individual or organisational initiative. These problems are subject to be dealt with collective power and unity. To apply that collective power of the business community, effective trade organisation is required. There are about five hundred trade organisations in Bangladesh; among these 101 are chamber of commerce (district chambers, metropolitan chambers, joint chambers, international chambers etc.) and about 379 sectoral associations are mentionable. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) is the apex institution that represents all the trade organisations of Bangladesh.

FBCCI used to negotiate, cooperate and support the government in enacting trade related policies on behalf of the private sector of the country. It represents all the trade bodies in different committee forms by different ministries, agencies, departments, and other organs of the government. It assists all the 500 trade bodies of the country in holding election and other regulatory purposes. FBCCI used to negotiate budgetary facilities for different sectors, products and customs structures with the national board of revenue (NBR) on behalf of the private sector.

To perform all of the above mentioned duties an efficient and functional FBCCI is our national requirement. To make it functional and effective its current manpower has to be increased, professional skills of existing manpower has to be improved and financial capacity of the federation has to be uplifted. There are many countries in the world where federation / national chambers are getting budgetary support from the government.

But till now FBCCI has to depend upon its members’ subscription, building rental and donation of business community. It is not sufficient to employ and retain efficient professionals and expand its services to the economy of Bangladesh. FBCCI will get its new leadership through the upcoming election in next month. We are hopeful that the new management will take necessary initiative to take the organisation as well as its member bodies into new height and serve the nation better. Competing business leaders are supposed to declare respective election manifesto soon. We would like to offer few recommendations as follows for their consideration and include into the election manifesto for making the federation as well as other trade bodies (chambers and association) for functional and effective:

  1. Taking necessary initiative to get budgetary support for operating FBCCI from the government.
  2. Pursuing the government to involve district chambers closely with the development project implementing in respective district.
  3. Undertaking projects to ensure hassle-free visa facility for the business community in consultation with all the foreign missions working here in Bangladesh. It will increase movement of our foreign trade into a new destination.
  4. Increasing research based capacity of the federation through undertaking visible interventions along with a time bound action plan
  5. Increasing capacity of the federation to undertake projects for private sector development and pursue government and other development partners for funding.
  6. Making the initiative of establishing Entrepreneurship Development Institute (EDI) a reality (initiated earlier but failed to get finance). Indian model of EDI, located at Ahmedabad, could be replicated here in this regard.
  7. Capacity building of different trade bodies to provide business support services, registrations and licenses. Negotiating with the government to hand over trade license, small and cottage industry registration etc. responsibilities to the trade bodies.
  8. Participating in foreign investment / trade fairs with own stall of FBCCI to facilitate B2B business matchmaking.
  9. Establishment of product research and new product innovation centre, testing laboratory, and undertaking product diversification initiative to enlarge export basket.
  10. Perusing the central bank and other ministries of the government to inspire the corporate houses, banks, NBFIs to support FBCCI development 10fund from respective CSR budget.
  11. Developing a research fund for conducting a certain number of systematic researches by the FBCCI research team every year.
  12. Providing FBCCI Award to the best growing company, most employment creator company, most Donor Company, best exporting company etc. to recognise their contribution to the society and inspire them to donate most at FBCCI development fund.
  13. Establishment of FBCCI’s branches in important business hubs at home & abroad and fixation of an FBCCI contact point in relevant ministries.
  14. Opening a news department in FBCCI and all major chambers and associations to assist local entrepreneurs to get quality certification of respective products from respective international or foreign authorities. It will help to get more acceptances of Bangladeshi products to the foreign buyers.
  15. Establishing business incubation centre to support new entrepreneurs, perusing the government for start-up financing.
  16. Establishing technology and engineering institute to produce skilled manpower as per demand of different business sectors.
  17. Motivating government for creating an environment to commercialise local inventions.
  18. Undertaking regular research on different international trade arrangements under the WTO, RTA or BFTA to make local entrepreneurs aware about our trade benefits under different agreements and facilitating to utilise the benefits in international trade.
  19. Playing more visible role in creating freelancers and adopting outsourcing friendly infrastructure in Bangladesh by the government.
  20. Undertaking projects to facilitate adoption and utilisation of e-commerce and e-business facility to make the digital revolution fruitful.

Finally we could state that the private sector has to play a visible role to achieve SDGs by 2030. This role could be played more effectively from a common platform like trade bodies instead of personal or institutional level. Therefore the government has to play its due role for capacity building of the trade bodies. New elected panel of FBCCI leaders could play the role of catalyst here in this regard. A common vision of the business community, government and the development partners is required to ensure sustainable development of the economy and achieving a developed Bangladesh as per our national target.

Levelling Trading Field for SMEs

Levelling Trading Field for SMEs

 

Md. Joynal Abdin

 The Daily Sun on April 2, 2017

There is a common debate that Bangladeshi SMEs are “Missing Middle” or “Excluded Middle” categories of enterprises of the economy. The first phrase i.e. the Missing Middle is mainly used by the donor communities and few Bangladeshi economists closely working with the donors.

It means that the SMEs are the middle segment of the enterprises which are missing either microfinance facilities i.e. exclusively for the cottage, and micro enterprises operated by the NGOs. On the other hand upper medium to large enterprises are enjoying every facilities of the institutional support offered by the government agencies and other institutes like banks, leasing companies, and multinational or regional trade negotiation platforms etc. Similarly in the second phrase Excluded Middle the concept is the same but only different is that, missing middles are out of service by error or unknowingly.

On the other hand, Excluded Middle are the missing part who are deliberately excluded by the policy makers, decision markers, government, development partners etc. to offer more benefits to the other segments. I would like to be with the second groups i.e. SMEs in Bangladesh are “Excluded Middle” segment of enterprises. Manufacturing SMEs are not getting any extra privilege over the trading and service sector enterprises from any policy aspects. SME loan are draining away by the traders or defaulter large enterprises that are included in the SME categories by the new definition of SMEs mentioned in the National Industrial Policy 2016 of the government. They are destroying reputation of the manufacturing SMEs through becoming defaulters in repayment of bank loans in time.

That means including trading, service and large enterprises into the categories of SMEs through broadening its threshold in the definition became harmful for the real entrepreneurs, I mean manufacturing SMEs from both the sides. Firstly they are competing with the manufacturers to grab benefits and destroying their reputations by becoming defaulters. Not only for these two reasons but due to many other reasons time has arrived to examine whether we are providing policy support to the real entrepreneurs i.e. local manufacturing enterprises those are creating jobs for the unemployed population in mass scale or their benefit is going to somewhere else due to policy gap of the government. To ensure optimum use of the government incentives and benefits definition of the manufacturing SMEs should be revisited and redefined by the government of Bangladesh.

To ensure inclusive and sustainable development of the economy it is not enough that the government will be happy with the GDP growth and increased amount of export earnings.

But government has to ensure stakes of every segment in the growth and export earnings as well. Large companies have competitive advantage over the SMEs in terms of organisational capacity, technical ability, access to finance, and negotiation capacity etc. aspects. As a result they are dominating in the national as well as the global trade of a country. But it is proved that the SMEs could have a vital stake in national and international market if proper policy support is available from the government. Japanese large companies are outsourcing required tools and equipment’s from their SMEs whereas Bangladeshi large companies are importing these from abroad to assemble or manufacture their products for national or international market. It could be said that the SMEs in Bangladesh are not capable of producing quality goods for supplying to the large companies. The question is how Japanese SMEs are being capable to produce qualitative goods? Why large enterprises, donors and government are not helping Bangladeshi SMEs to overcome their limitations and produce qualitative products for supplying to the large companies?

Arguments could come up survival to the fittest, why government should offer them extra benefit? The answer is quite simple that SMEs are contributing two-thirds of formal non-agricultural private employment around the world. They are contributing 63% of the total employment in OECD countries. In most of the developing countries and LDCs, SMEs are contributing more to employment generation than that of their GDP contribution. It is because SMEs are mainly labour intensive and using traditional low productive machineries due to their inability of further access to technology. But In Japan, Korea, and China it is proved that the SMEs could play the role of feeder organisation and supply qualitative intermediary goods for boosting up mass production of the large entities. On the other hand export orientation of SMEs could increase demand for their products and help them to go for large scale production.

Export orientation of SMEs could be facilitating in various forms like direct exports, indirect exports, non-equity contractual agreements, and foreign direct investment (FDI) etc. A recent study shows that, only 7.6% of the SMEs involved with export around the world are mostly from developing countries. On the other hand 14.1% of the large enterprises of the developing countries (that means double of the SMEs) are involved with export business. In terms of LDCs SMEs export involvement is about 3%, but direct export of manufacturing SMEs is a negligible, where 0.09% of service SMEs are export linked, this figure is 31.9% in case of large enterprises. That means SMEs are missing a level playing field in terms of international trade around the world. But for fostering inclusive and sustainable development a level playing field has to be created for the SMEs in international trade.

In terms of direct export Bangladeshi SMEs have limitation in trade negotiation with the potential buyers, limited ability to go abroad for buyer searching, limited managerial knowledge to handle export procedures and documentation etc. Therefore indirect export through large companies or group wise export could be encouraged here in Bangladesh. For example, one or two SMEs are unable to bear initial export costs but if ten SMEs become united and export under on single brand name and export documentation then it could be worthwhile in terms of export cost bearing and procedure handling. But till now buyer searching and proper positioning of products remains as challenges. In this case all the Bangladeshi embassies located outside Bangladesh could organize Bangladeshi product fairs once a year and display our SME products by inviting local chamber of commerce and business leaders and play the role of match makers in this case.

SMEs participation in indirect export is much better around the world. About 90% of export earnings of developing countries are indirectly contributed by the SMEs. The same report shows that, 78% of global enterprises are SME representative but only 34% of these are involved with direct or indirect international trade. That means SMEs have ability to further contribute in international trade around the world. If a level playing field could be ensured. Major obstacles to create a level playing field for the SMEs are:

SMEs are facing high tariff even more than the large firms due to the existing market mechanism. They are facing double even triple taxation due to their inability to maintain or obtain required tax relevant documents.

Adverse effects of the Non-tariff measures imposed by the importing country hit the SMEs much. Because large companies could adopt newer measures to address NTM requirements and enter into the market as a compliance company. But due to their limited capacity SMEs could not.

Cumbersome boarder procedures and delay shipment or clearance effect the SMEs more due to their inability of bearing highly charged boarder storage cost.

Access to information and distribution channel development is also another major challenge for export orientation of SMEs. Difficulties in access to required amount of trade finance is another major challenge for SMEs export orientation.

Most of above challenges require government policy intervention for creating and maintaining a level playing field for SMEs in national as well as international market. Adoption of ICT, e-marketing, e-commerce adoption could give them advantage over few of the above mentioned challenges but finally it is the government who has to come up with kind heart to support SMEs to grow further and contribute more in employment generation, GDP growth, export earnings and ensure an inclusive and sustainable development of the economy. Otherwise they will remain Missing Middle or Excluded Middle as mentioned.

Creating Investment-friendly Business Environment

Creating Investment-friendly Business Environment

Md. Joynal Abdin

The Daily Sun on March 15, 2017

 

Bangladesh is a land of unutilised opportunities and untapped potentials. Traditionally Bangladesh was an agriculture driven economy but during last few decade it is shifting its agriculture dependency into industrial economy. At the same time a steadily growing service sector is backing the industrial development of the country. According to a recent report contribution of agriculture, industry and service sector to Bangladesh economy was 51.03%, 7.69 % and 41.28% respectively in the year 1971.  Contribution of agriculture decreases into 31.55% and industry increases into 20.63% in the year 1980. Service sector contributed 47.82% to Bangladesh economy in the same year. Since then contribution of industry and service sector to Bangladesh economy is increasing and agriculture is decreasing day by day. It does not mean that the agriculture sector is losing its importance but it indicates industry and service sector is becoming stronger but agriculture is contributing as before. Agro processing industry is fully dependent upon agriculture sector; therefore no way to underscore agriculture sector too. Currently (2015) contribution of the same sectors to the Bangladesh GDP is 15.50% (Agriculture), 28.14% (Industry) and 56.34% (Service). From the above discussion it is quite clear that the economy of Bangladesh is going through a transformation from agriculture dependent economy into industrialized economy.

Agriculture has a highest limit of production per acres of land. But industry and service sector have the liberty to produce unlimited number of units or value by using the same piece of land. Therefor government of Bangladesh took parallel initiatives for agriculture and industrial development.

Foreign Recognitions of Bangladesh:

Prospect of Bangladesh economy is not recognised by the Bangladeshis only. Today it is widely recognised by the global think-tank and investment Banks like Goldman Sachs. The Goldman Sachs Investment Bank described Bangladesh as one of the Next – 11 countries (N-11) due to its prompt growth potentials (Lawson, Heacock, and Stupnytska, 2007). Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam – identified by Goldman Sachs investment bank and economist Jim O’Neill in a research paper as having a high potential of becoming, along with the BRICS countries, among the world’s largest economies in the 21st century.

Regulatory Environment for Investment in Bangladesh:

Indian subcontinent inherited the British legal system since the colonial period. As a result Bangladesh has a very structured legal system since its inception. It has about 45 laws relevant to the investment, business, trade and commerce in various sectors. There are more than 10 policies with different incentives and supports of the government to promote private sector investment in various sectors.

The foreign private investment (promotion and protection) Act, 1980 has been passed that ensures legal protection to foreign investment against nationalization and expropriation. It also guarantees repatriation of capital and dividend; and equitable treatment with local investors with regard to indemnification, compensation, restitution, or other entitlement as is accorded to investment. The government has made bilateral agreements for avoidance of double taxation with 26 countries and negotiations are going on with 23 countries.

Investment treaty for promotion and protection of investment between Bangladesh and twenty countries have been concluded and negotiations are going on with 9 other countries. Besides these, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a number of WIPOs (World Intellectual Property Organisation) a Permanent committee on development and cooperation related to industrial prosperity. Adequate provision is also made available for intellectual property rights, such as patents, design and trademarks and copy right.

The government has already enacted bankruptcy law. A law commission has been constituted with a view to identify the anomalies and weaknesses in the existing laws and legal system. One of the main tasks of this commission is updating the existing laws in relation to industries, trade and business.

All these are expected to improve general business environment along with the environment of FDI. Efforts are being made to reform the bureaucratic administration in order to make it efficient and supportive of better services for inflow of FDI and economic development oriented activities. Substantial modifications have been made to up-date the laws dealing with financial sector. The Companies act 1994 and labour Act 2006 have been enacted for facilitating inflow of FDIs in Bangladesh.

In order to improve the environment of private foreign investment and FDI, several EPZs have been established in Chittagong, Dhaka, Khulna under the Bangladesh Export Processing Zones Authority (BEPZA) in 1980. The private Export Processing Zones (PEPZs) Act has also been enacted to encourage the establishment of “Private Export Processing Zones” by the local and foreign investors. These EPZs are well enriched with the necessary infrastructural facilities and are completely protected from any law and order problems or union activities.

The BEPZA approves all projects to be located in the EPZS and offers “One window same day service” to the investors in the EPZs. The government has also approved the private power generation policy of 1996 and tax exemption on income of the company for 15 years from the date of commercial production is allowed.

The Government has undertaken several steps to make import liberalization and industrial deregulations more effective including announcing its strategy of reducing effective protection over the medium term, continuing its efforts to lower and simplify tariffs, publishing a clear tariff schedule, developing an action plan for legal reforms and a blue pint for deregulation, and putting an action plan for implementing its exports development strategy. These efforts have improved the investment environment in Bangladesh.

Bangladesh is one of the promising economies with a large domestic market, availability of labour with competitive price, low utility charges, two seaports and a potential deep seaport facility, long-term tax holiday, 100% repatriation facility, and easy access to largest regional market like India and China.

Investment Friendly Facilities and Incentives: 

Tax  exemption  on  royalties,  technical  knowhow  and  technical  assistance  fees  and  facilities  for  their repatriation, tax exemption on interests on foreign loans, tax exemptions on capital gains from transfer of shares by the investing company, remittances  of  up  to  50%  of  salaries  of  the  foreigners  employed  in  Bangladesh  and  facilities  for repatriation of their savings and retirement benefits at the time of their return, no restrictions on issuance of work permits to project related foreign nationals and employees, facilities for repatriation of invested capital, profits and dividends, provision of transfer of shares held by foreign shareholders to local investors, reinvestment of remit table dividends would be treated as new investment, and foreign owned companies duly registered in Bangladesh will be on the same footing as locally owned ones etc. facilities are available for foreign investors.

Besides the above facilities Bangladesh is offering corporate tax holiday of 5 to 7 years for selected sectors, reduced tariff on import of raw materials capital machinery, bonded warehousing, accelerated depreciation on cost of machinery is admissible for new industrial undertaking (50% in the first year of commercial production, 30% in the second year, and 20% in the third year), tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange, reduced corporate tax for 5 to 7 years in lieu of tax holding and agricultural deprecation, Cash incentives and export subsidies ranging from 5% to 20% granted on the FOB value of the selected products, At best 90% loans against letters of credit (by banks), and permission  for  domestic  market  sales  of  up  to  20%  of  export-oriented  companies  outside  EPZ  (relevant duties apply) etc. fiscal benefits to the local or foreign entrepreneurs.

Additionally Bangladesh is offering 100% foreign equity allowed, unrestricted exit policy, remittance of royalty, technical know-how and technical assistance fees, full repatriation facilities of dividends and capital at exit, and an  investor  can  wind  up  investment  either  through  a  decision  of  the AGM  or  EGM, he  or  she  can repatriate the sales proceeds after securing proper authorisation from the Central Bank etc. benefits to a foreign investor.

Investment Friendly Factors of Production:

  • Largely a homogenous society with no major internal or external tension Bangladesh has a population with great resilience in the face of adversity.
  • The people of Bangladesh, a liberal democratic country irrespective of race and religion are living in harmony for years.
  • Bangladesh enjoys broad non-partisan political support for market-oriented reforms and offers the most investor-friendly regulatory regime in South Asia.
  • This country has a large trainable, enthusiastic, and hardworking low-cost labour force suitable for any labour-intensive industry.
  • A bridge between ASEAN and SAARC nations, the Geographical location of Bangladesh is ideal for global trades with very convenient access to international sea and air routes.
  • Bangladesh is endowed with abundant supply of natural gas, coal, water and very fertile soil.
  • Although Bangla is the official language. English is widely spoken as second language.
  • Increasing trend of per capita forecasting its purchasing power is increasing in the local market.
  • All Bangladesh products other than armaments enjoy complete duty and quota free access to EU, Japan, Canada, Australia, Norway and most of the developed countries. However, for apparel export to USA, Bangladesh has a quota regime which ended on 1st January 2005.
  • Export earning is continuously increasing.
  • Increasing trend of remittance earning.

Challenges and Recommendations:

With all of the above benefits Bangladesh have few limitations and challenges to attract further investments. Government could consider following recommendations to make the business environment sustainable and attractive to foreign investors:

  • Decreasing number of permissions / registrations / licenses requirements with a predetermined time frame / one stop investment services.
  • Ensuring hassle free and in-time delivery of industrial utilities like Electricity, Gas and water etc.
  • Making Bangladesh Investment Development Authority functional and effective with adequate resources.
  • Special investment attraction drive with specific project proposals to attract local and foreign investment.
  • Activating entrepreneurship promoters like better business forum or regulatory reform commission.
  • Developing infrastructure as per requirement of tomorrow’s business world.
  • Developing sector specific demand driven skilled manpower with specific technical knowledge.

Finally, we could conclude here with a statement that, Bangladesh has long lists of sectors and wide feature to promote local and foreign investment. But in absence of an effective and functional investment promotion agency (not regulator) Bangladesh is performing not as per the expectations. There are several entrepreneurship development, SME Development and Industrial Promotion agencies of / establish by the government. But due to lack of manpower, financial ability, technical and professional knowledge most of the organisations are less performing. Activating those organisations with right person at the right place could be one of the ways forward to strengthen investment attraction movement of Bangladesh.

Overseas Employment Sector Deserves More Attention

Overseas Employment Sector Deserves More Attention

Md. Joynal Abdin

The Daily Sun on November 18, 2016

 

Contribution of agriculture, industry and service sector to the Bangladesh GDP was 51.03%, 7.68% and 41.28% in the year 1971 (during the Liberation War of the country) respectively. Similarly, it was 31.55%, 20.63%, and 47.81% in the year 1980, 32.75%, 20.69% and 46.55% in the year 1990 respectively. Later on in the year 2000 contribution of agriculture, industry and service sector to the Bangladesh GDP was 23.77%, 23.31% and 52.91% respectively. Currently (2015) contribution of the same sectors to the Bangladesh GDP is 15.50% (Agriculture), 28.14% (Industry) and 56.34% (Service). From the above discussion it is quite clear that the economy of Bangladesh is going through a transformation from agriculture dependent economy into industrialised economy. Agriculture has an optimum point of production that could not be increased by increasing inputs. Therefore the government is encouraging industrialisation for facilitating employment generation, poverty reduction, earning foreign currency by increasing exports, and so on and so forth.

Since our independence one segment of Bangladesh GDP i.e. service sector is rising sharply without much efforts and measures. It has grown from 41.28% into 56.34% without any breakthrough. Contribution of industry rose to 28.14% from 7.68% with the growth of RMG, Leather, Plastic, Agro-processing sub-sectors. We offered back to back L/C facility, bonded warehouse facility, Cash incentives, Negotiated at WTO and other regional and bilateral forums to ensure duty-free and quota-free facilities to the manufacturing industrial sub-sectors. As a result, readymade garment (RMG) sectors earned UDS 25.49 billion in 2014-15 FY. If the value addition is around 30% then we could state that Bangladesh received USD 7.65 billion by employing 1.2 million workers, a large amount of capital, fullest capacity of our diplomacy etc.

On the other hand, Bangladesh received USD 15.31 billion remittance in 2014-15 FY by employing 0.6 million overseas workers. Without consuming Bangladeshi rice, water, gas, electricity or any other facility overseas workers contributed USD 15.31 billion for the country. Most of them are less-skilled, semi-skilled or even unskilled. How many Bangladeshi taka the government provided as cash incentives for them? How much tax government weaved? How many trade delegations went to negotiate with foreign recruiters regarding the welfare of these overseas workers of Bangladesh? How many free trade agreements required be negotiated or signed to promote flow of workers to the destination countries? How many institutes/ universities the government has established to increase their skills so that they could earn more money with the same service?

USD 15.31 billion is net profit of Bangladesh whereas we are working hard to get USD 7.65 billion profits by employing more workers, capitals, policies, and so on and so forth. It is very shame for the nation while we read news that baggage of this overseas workers are missing in Hazrat Shah Jalal International Airport while returning home. It is our national disability to establish a government commission for promoting overseas employment in abroad. They will be liable to collect foreign demands for the workers and supply visa to the interested workers without super profit of the middlemen.

We hate those Bangladeshi diplomats who are ashamed to talk to Bangladeshi workers abroad while they are in dire need for help. We hate those embassy people who disagree to offer information support / direction / advise while a Bangladeshi worker is missing abroad. Many Bangladeshi workers have to be buried abroad while they died there. Why could not we ensure an overseas worker that his dead body will be carried forward to your family if he dies over there? Anyway this sector is the second highest source of foreign currency for Bangladesh economy.

Migration from Bangladesh started in 1976 with a modest number of 6,078 workers. Presently Bangladeshis are engaged in overseas employment in more than 100 countries; about 6.07 million workers had been employed in various parts of the world up to October 2016. 2007 and 2008 were the highest overseas employment years in the history of Bangladesh with total 8.32 million and 8.75 million employed overseas. But in terms of remittance 2014 and 2015 are the highest earning years with USD 14.94 billion and USD 15.27 billion remittances respectively.

About 49.65% Bangladeshi overseas workers are less skilled, 31.75% are skilled, 15.15% are semi-skilled and only 2.3% of them are professionals. Comilla has the highest number of overseas employed population i.e. about 11% of the total overseas employed population followed by Chittagong 9.57%, Brambanbaria 5.22%, Dhaka 4.48% and Chandpur 4.16% of total migrated populations. Top most destinations of Bangladeshi overseas workers are the KSA, UAE, Kuwait, Qatar, Bahrain, Oman, Malaysia, Korea and Singapore etc.

To ensure smooth migration of workers and professionals, the government shall have to take the following steps:

  • to reduce the prevailing unemployment problem of the country;
  • to earn foreign currency without consumption of Bangladeshi foods or drinks;
  • to reduce frustration among the youths, terrorism, drug addiction, social unrest etc;
  • to develop the capability of investment for self-employment and entrepreneurship;
  • to promote relevant business sub-sectors like travel agents, aviation, tourism etc;
  • to enhance the financial capability and purchasing power of the migrant workers which gears up the economic activities and uplifts the standard of living;
  • to enhance transfer of technology to the country through technical knowledge and expertise acquired by the workers working abroad;
  • to create motivation and develops awareness of the migrant workers towards cleanliness, hygienic environment, importance of literacy, discipline, etc.

Overseas workers face the following challenges while migrating:

  1. Corrupt Passport office does not issue passports without some extra money / hassle.
  2. Super extra profit motive of the recruiting agency / visa sellers leads to abnormally high payment for the visa.
  3. Procedural hassles in some legal institutions in home and abroad.
  4. Over demand of the employers without adequate requirement of labour just to get the money by selling visa.
  5. Non-payment, underpayment, delayed payment, poor living conditions, refusal to provide air tickets at the time of exit, non-adherence to the terms and conditions of employment by the sponsors.
  6. Sometimes workers are repatriated after becoming handicapped temporarily or permanently due to accidents without proper treatment or compensation.
  7. If a worker dies over there, then carrying his dead body is another burden for his family.
  8. In most of the cases victims’ families do not receive insurance or other benefits due to non-claim for the benefit.
  9. The government is paying around three lakh Bangladeshi taka to each of the victims’ families (if workers die abroad) but the system is too cumbersome and lengthy.
  10. Sometimes recruiting agents do not provide any money receipt for receiving money from the migrant workers.
  11. Sometimes some agents do not handover the requisite papers like employment agreement, visa papers, etc., to the workers, or they deliver it at the last moment before departure.
  12. Sometimes recruiting agents do not come up to assist the workers who are facing various problems related to their contracts in the destination countries.

The above mentioned hassles would be removed if the government took following actions:

  1. Activating relevant government agencies with a view to turning regulators to service providers;
  2. collecting demands for workers and professionals from foreign recruiting authorities and supplying those visas to the interested workers and professionals with a logical / banking profit;
  3. the government should reduce government agency linkage to reduce migration time and relevant corruption;
  4. searching new destinations and new professions to increase remittance earnings;
  5. providing training on demanded trade and exporting skilled workers instead of unskilled or semi-skilled workers and using Bangladeshi embassies as service centres for the overseas workers instead of remaining typical bureaucrats.

Neighbouring India earns much more remittance per overseas worker because they are sending skilled workers after negotiating their working environment, minimum salary, insurance benefit etc. Migration cost from India to the same destination is much less than that of Bangladesh. Therefore it is time for the government to come forward for the welfare of the overseas workers and migrating professionals to ensure a hassle-free, safe and secure migration and ensure logical remuneration for them through government to government negotiation. Special drives could be taken for encouraging highly educated professionals to opt for overseas employment to ensure more earnings and quick development of the country.

The path to higher middle-income status

The path to higher middle-income status

Md Joynal Abdin

The Financial Express on July 11, 2015

The current fiscal year started with a good piece of news for Bangladesh. The World Bank upgraded it from the low income country status to a lower middle income category on July 01 last. This upgradation will increase our dignity while applying for foreign loans either by the government or by private sector investors. We will be treated a low-risk country for investment. Therefore, it will have a positive impact on decision-making of foreign direct investors. Increase of foreign direct investment (FDI) could be an immediate positive outcome of this graduation.

The World Bank has classified economies into four broad categories based on their Gross National Income (GNI) per capita. The lowest category is the low-income country having per capita GNI of less than US $ 1,045. The next category is the lower-middle income country having the per capita GNI of US $ 1,045-4,126. The third category is the higher-middle income country having the per capita GNI of US $ 4,126-12,735. The topmost category is the higher-income country having per capita GNI equal to or more than US $ 12,735 per year.

Statistics shows that Bangladesh’s GNI per capita reached US $ 1,054 in the fiscal year (FY) 2012-13 and gradually it reached US $ 1184 in 2013-14 and US $ 1314 in 2014-15. As we achieved the higher GNI per capita for three consecutive years, more than the lowest slab of the requirement for becoming a lower-middle income country, the World Bank officially shifted the country into that category. But there are instances of a country slipping back into the low-income status or remaining stuck in the lower-middle income level for several decades. Therefore, Bangladesh has to be careful about not falling back while a clear vision has to be there so that we can enter the next level of higher-middle income country quickly. The next target for Bangladesh is more challenging, because it has to achieve per capita income of more than US $ 4,126, four times the present achievement.

The present level of achievement is attributed to the common people, who did it without that much planned intervention of the government or policy makers. The full credit goes to the common people. They did it unlike us. Until now we are lagging behind economic targets mentioned in the Vision 2021. According to the Vision 2021, the country was supposed to achieve 8.0 per cent GDP (gross domestic product) growth by 2013 and 10 per cent by 2017. But at present the GDP growth is hovering from 6.0 per cent to 6.5 per cent. Similarly we were supposed to achieve the hundred per cent literacy rate by 2014, but it has been achieved up to 70 per cent. We have a long way to go before achieving the target of per capita GNI of US $ 4,126. It cannot be attained overnight. It requires proper planning and timely implementation of decisions.

THE CHALLENGES: This is the time to recognise our challenges and find out strategies to face them. Increasing investment could be one of the best ways forward for Bangladesh to increase the GDP growth, create jobs and reduce poverty. Investments stood at 28.58 per cent of GDP in the country in the FY 2013-14. It helped achieve 6.06 per cent growth in the fiscal year. The investments need to be raised to 34.4 per cent to post 8.0 per cent GDP growth. That means we have to increase investment by about 5.82 per cent of our GDP (the total GDP is Tk 13,509,204 million, according to the data of Bangladesh Bureau of Statistics as of 2014).

Investing such a large amount is almost impossible for both the government and the local private sector alone. Therefore, the government could inspire the private sector to boost the local investments and at the same time they could lure foreign direct investors to invest in Bangladesh. Foreign direct investment (FDI) could be very much helpful for Bangladesh to achieve the projected GDP growth.

Statistics says the level of fresh FDI is not satisfactory. FDI inflow was US $ 1194.88 million, 1730.63 million and 1495.5 million in 2011-12, 2012-13 and 2013-14 respectively. A major percentage of the FDI was reinvestment of locally-earned profits. The foreign equity capital inflow was only US $ 454.1 million, 761.03 million and 270.59 million. We have to increase our performance in attracting FDI at any cost. Otherwise, it could be almost impossible to meet the targets.

COMPARISON WITH VIETNAM:  We can compare our economic performance with that in Vietnam. Both the countries have similar stories of achieving independence through long bloody war. Both suffered heavy losses during their war. As per IMF data, Bangladesh’s total GDP is about US$ 185 billion. Similarly, Vietnam’s total GDP is about US$ 186 billion. Vietnam earned FDI to the tune of US $ 19,886.1 million, 15,598.1 million and 16,348 million in 2010, 2011 and 2012 respectively. During the period Bangladesh got only US $ 913.3 million, 1136.4 million and 1191 million respectively. Bangladesh posted FDI inflows equivalent to only 11-12 per cent of what Vietnam saw. It is reflecting our measurably poor performance in increasing investment.

If Bangladesh wants to enter the higher middle-income country category within the next one or two decades, we have to draw up a proper action plan and start implementing it from today.

INVESTMENT CLIMATE: The current investment climate in Bangladesh is very cumbersome from every aspect. An investor is required to go to about 30 different institutions for a licence, registration and permission to operate a business. These institutions are under different ministries. An investor seeking to run a manufacturing company has to go to a city corporation or a union council for a trade licence, to the National Board of Revenue (NBR) or tax authority for TIN (taxpayer’s identification) and VAT (value-added tax) registration. Besides, there are the Registrar of Joint Stock Companies and Firms (RJSCF) for joint stock registration, scheduled banks for business account, the Chief Controller of Imports & Exports (CCI&E) Office for import and export registration certificates, the Directorate of Environment (DoE) for environment clearance, Bangladesh Standards and Testing Institution (BSTI) for certificates on product standards, the Export Promotion Bureau (EPB) for rules of origin certificate etc. A manufacturing company also needs gas, water, telephone, insurance and many other services. Most of the offices are operating as regulatory bodies. The policing mentality of a section of officials there and corrupt practices make the whole process complex and time-consuming. Now it is the time for decision makers to make the process easier, even one-stop investment service (if possible) can be offered to attract local as well as foreign investment.

In a chaotic political environment entrepreneurs lose most either in the form of money or human capital. Foreigners are not used to this type of man-made chaos. As a result, they become disillusioned. It affects our exporters, joint ventures and FDI flows. Our political leaders have to reach a consensus on ensuring a better political atmosphere and thus make sure that Bangladesh emerges as a higher middle-income country.

Bangladesh’s international trade (export and import) is mainly dependent on a single seaport-Chittagong Port-and the single highway, namely, the Dhaka-Chittagong highway. So, traffic jams are eroding our competitiveness in international trade. Bangladesh has to think of alternatives to these two single options. Traffic jams in Dhaka city also are eating up a significant portion of man-hours. Infrastructural development should be made adequately to ease the problems. All government offices including Secretariat as well as the cantonment, universities and garment factories should be relocated outside Dhaka and it will provide a relief to the city-dwellers. A deep-sea port, transit routes to India, Nepal, and Bhutan etc. have to be developed within the shortest possible time to reap benefit of the four-nation transport and transit agreement signed recently in Nepal. We are lagging behind our competitors in the use of industrial utilities and infrastructure. The government should think of cluster-based industrial development and ensure required infrastructure and utilities for such industrial units.

Inefficient or corrupt bureaucracy is a big hurdle for economic development of a country. There is enough room for improving the efficiency level of our bureaucracy by introducing digital filing and any other transparent process. Most of the trade and investment institutions have the scope for capacity-building. The government has to undertake prompt action for institutional capacity building of public sector organisations and agencies. New service-oriented (not regulatory) and pro-development institutions like a specialised trade negotiation commission, a cluster development agency, a foreign investment promotion agency, an entrepreneurship development institution etc. are required for supporting and promoting the private sector and it will help the economy attain the take-off stage. Only then we can dream of a higher middle-income status or even more than that for Bangladesh.